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OUTLOOK 2015
OVUM.COM
@OVUMTELECOMS
Welcome
Mark Newman
Chief Research Officer, Ovum
For all enquiries please contact us at:
+44 (0)20 7017 4994
enquiries@ovum.com
OVUM.COM
03
Ovum Telecoms
and Media
Ovum is the leading analyst house across converging
telecoms, media and IT markets. We offer a greater breadth
and depth of coverage, with more metrics and insight across
more markets, than any other provider.
Ovum understands that:
Industry value is shifting This means that you need expert
insight, context, and understanding that can help you recognise,
assess, and respond quickly to the challenges, opportunities, and
threats of the new value chains.
OVUM.COM
IT
MEDIA
Multi-disciplinary teams
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Media
TELECOMS
04
06
Enterprise
IT for Telcos
Telco IT
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WE ARE CONNECTED
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06
2
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OVUM.COM
07
3
01
MOBILE
OPERATORS &
SERVICES
Q+A
2014 HAS BEEN A TOUGH YEAR FOR MOBILE OPERATORS
IN EUROPE. IS 2015 GOING TO BE ANY EASIER?
Not really. Ovum forecasts that operators mobile revenues in Europe will decline
by 1.7% year-on-year in 2015. In particular, pressure in Western Europe will
continue, with revenues declining by 2.7% year-on-year compared to a rise of 1%
for Eastern Europe. However, this is an improvement on 2013 to 2014. Western
European retail connectivity revenues saw a 3.1% decline, with Eastern European
growth of 0.4%. The appetite for mobile data is encouraging data revenue growth;
2015 will see data revenues in Western Europe breach 50% of the total for the first
time, while Eastern Europe grows to 37%.
STEVEN HARTLEY
PRACTICE LEADER
Bundled content subscriptions are more common in Europe and North America,
with the likes of Spotify and Deezer leading the way. Such deals offer promotional
benefits for both the mobile operator and content provider.
Sponsored data has been much hyped but we have seen very few examples of it
being adopted yet in Europe or North America. There seems to be more interest in
Asia, specifically in China.
FIG 1
MOBILE SUBSCRIPTIONS BY REGION
9
FIG 2
Subscriptions (billions)
6
4.2%
World
5
0.9%
Western Europe
4
1.9%
Eastern Europe
North America
3.0%
3.1%
3.9%
OESEA
4.3%
Middle East
0
2013
2014
2015
2016
2017
2018
2019
5.1%
Africa
Middle East
North America
Western Europe
Eastern Europe
<<
SOURCE:
INSERT
OVUM
FIG 1 >>
10
0%
SOURCE: OVUM
OVUM.COM
7.4%
Africa
1%
2%
3%
4%
CAGR
5%
6%
7%
8%
FIG 4
RETAIL CONNECTIVITY AND VAS REVENUES BY REGION
400
350
300
250
Revenue ($bn)
200
150
100
50
FIG 3
TOTAL SERVICE AND RETAIL CONNECTIVITY REVENUE
1,150
1,100
Revenue ($bn)
2014
2015
2016
2017
2018
2019
Africa
Middle East
North America
Western Europe
Eastern Europe
SOURCE: OVUM
1,050
1,000
950
900
850
2013
2013
2014
2015
2016
2017
2018
2019
SOURCE: OVUM
OVUM.COM
11
FIG 5
MONTHLY ARPU BY REGION
$60
Monthly ARPU
$40
$20
$0
2013
2014
2015
2016
2017
2018
2019
Africa
Western Europe
Middle East
North America
Eastern Europe
SOURCE: OVUM
12
OVUM.COM
FIG 6
MARKETS FORECAST TO SEE ARPU GROWTH OVER
2.5%
Rest of OESEA
1.3%
Romania
0.9%
South Korea
0.9%
India
0.8%
Kenya
0.7%
Vietnam
0.5%
China
0.5%
Turkey
0.3%
Saudi Arabia
0%
2%
1%
3%
CAGR
SOURCE: OVUM
OVUM.COM
13
02
FIXED
OPERATORS &
SERVICES
Q+A
WE HAVE SEEN A NUMBER OF FIXED/BROADBAND
OPERATORS INVEST IN CONTENT MORE SPECIFICALLY
SPORTS TV RIGHTS IN 2014. ARE WE GOING TO SEE
MORE OF THE SAME IN 2015?
KAMALINI GANGULY
SENIOR RESEARCH ANALYST
Yet directly monetizing Wi-Fi from end users will remain difficult. In the short
term, customers and carriers will continue to see Wi-Fi as an extension of wireline
or wireless broadband access services. For example, US cable players report that
bundling Wi-Fi into the wireline package helps them to reduce churn, attract
new customers, and upsell to higher tier packages. Consequently, the scale and
quantity of available hotspots are critical.
So although it is clear that Wi-Fi will grow in terms of traffic over time, there is less
clarity that it will grow in terms of revenues. Carriers will charge some customers
for access at premium locations, such as stadia or airports, but will have to share
those revenues with venue owners, or charge the venue directly. Paid-for, sessionbased, or subscription-based Wi-Fi access will continue to exist, but these access
services will yield diminishing returns as the wider availability of Wi-Fi access
points drives down prices and perceived value.
FIG 1
GLOBAL FIXED VOICE REVENUES VS GLOBAL FIXED BROADBAND REVENUES
$400
$350
$300
US$ (billions)
$250
$200
$150
$100
$50
$0
2012
2013
SOURCE: OVUM
16
2014
OVUM.COM
2015
2016
2017
2018
2019
FIG 2
GLOBAL FIXED VOICE SUBSCRIPTIONS VS GLOBAL FIXED BROADBAND SUBSCRIPTIONS
1,200
1,000
Millions
800
600
400
200
2012
2013
2014
2015
2016
2017
2018
2019
SOURCE: OVUM
OVUM.COM
17
FIG 3
GLOBAL FIXED BROADBAND SUBSCRIPTIONS BY TECHNOLOGY
1,000
900
800
Subscriptions (millions)
700
600
500
400
300
200
100
0
2012
2013
DSL
2014
2015
Cable modem
2016
FTTH/B
2017
2018
2019
Fixed other
SOURCE: OVUM
18
OVUM.COM
OVUM.COM
19
03
TV
Q+A
WHAT DO YOU THINK OF ALL THE ONLINE SERVICES LIKE
IPLAYER, YOUTUBE AND NETFLIX? IS ANYONE EVEN
WATCHING TRADITIONAL TV ANYMORE?
Linear TV is still the dominant media format in terms of audience size, reach,
spending (both consumer and advertising), and consumption across all media.
Even in countries where the adoption of online viewing is at its highest, the share
of viewing time achieved by OTT and non-linear TV (VOD, DVR) is barely 20%. The
disparity between TV and online viewing formats is even more pronounced when
we compare advertising spend. It will be many, many years (if ever) before linear
TV loses its position as the mass-market entertainment format of choice for every
single country on Earth even in Bhutan, which banned TV until 1999.
ED BARTON
PRACTICE LEADER
We are now seeing traditional TV distributors and channels assert their existing
dominance in the value chain by leveraging online distribution for their own
ends. Multiscreen or TV everywhere services distributed over the top to devices
acquired by consumers such as PCs and tablets (as opposed to the leased set-top
box) are now a common part of the pay-TV value proposition. But they, along
with broadcasters such as CBS and HBO, are going further with the launch of OTT
subscription TV: streaming services that deliver linear TV streams.
OTT subscription TV streaming and Netflix operate on commercial models based
entirely on what they learned from traditional TV and home entertainment
distribution respectively. The Internet has not come close to disrupting TV and
does not need saving by Google, Apple, or anyone else. The greater likelihood,
as observed by Michael Wolff in The Hollywood Reporter, is that TV is disrupting
the Internet.
22
OVUM.COM
MARKET OVERVIEW
THE PAY-TV MARKET IN BRIEF
The North American and Western European pay-TV markets
are mature, offering limited prospects for overall subscriber
growth, and an increasingly difficult competitive climate
as operators struggle to differentiate themselves from
one another. In particular, second-tier and smaller payTV operators are up against the rising costs of premium
content acquisition and the futility of trying to challenge the
dominance of incumbents with me too offerings. Moreover,
the transactional VoD market presents only a limited
additional revenue opportunity, as consumers veer further
toward more cost-effective SVoD offerings. Meanwhile all
operator-delivered VoD services are under threat from a
rapidly improving range of OTT alternatives. Increasingly,
operators have to look beyond high-value premium video
content and offer something that is different and will deliver
FIG 1
FIG 2
35%
34%
30%
32%
Rarely
25%
20%
Atleast once a month
15%
44%
16%
10%
48%
5%
0%
Pay-TV customers
Free-to-air viewers
0%
53%
Everyday
10%
20%
30%
40%
50%
60%
SOURCE: OVUM
COMPANY OVERVIEW
NETFLIX
Netflix is the worlds most widely used provider of Internetdelivered SVoD services, which it has offered in its core US
market since 2007. Netflix has established operations in
several other markets, including Canada, the UK, Ireland,
the Netherlands, the Nordics, and Latin America. In July
2014 the company announced that it plans to expand into
six additional markets, thereby extending its European
footprint to 13 countries by the end of the year. Access fees
are competitive, with basic TV access subscription charges
currently standing at $7.99 per month in the US, 7.99 in the
UK, and 7.99 in most European markets.
Netflixs expansion continues apace, with the domestic paid
subscriber base growing by 22% to 35.0 million in the year
to June 2014; international subscriptions rose by 84% to
12.9 million in the same period. Meanwhile the overall profit
margin for the streaming business (expressed in terms of
profit contribution as a proportion of revenues) reached 17%,
up from 10% a year earlier. With its established reputation
OVUM.COM
23
TABLE 1
TABLE 2
COUNTRY
OPERATOR
TYPE
ANNOUNCED
UK
Virgin Media
Cable
September 2013
Up to 50MB
Up to 100MB
Up to 152MB
Sweden
Com Hem
Cable
October 2013
20.50
22.50
28.00
Denmark
Waoo
Telco/ISP
October 2013
US
Atlantic Broadband
Cable
April 2014
US
Grande Communications
Cable
April 2014
60+ channels
130+ channels
230+ channels
260+ channels
US
RCN Corp
Cable
April 2014
10 HD channels
11 HD channels
43 HD channels
59 HD channels
US
Suddenlink
Cable
May 2014
US
GCI
Cable
June 2014
TiVo 500GB
10 Sky channels
14 Sky channels
US
Midcontinent Communications
Cable
June 2014
Multiscreen
TiVo 500GB
TiVo 500GB
44 Sky channels
US
Cable ONE
Cable
July 2014
Belgium
Belgacom
Telco/ISP
September 2014
Catch up TV
Multiscreen
TiVo 1TB
France
Bouygues
Telco/ISP
September 2014
France
Orange/FT
Telco/ISP
October 2014
US
Catch-up TV
Multiscreen
France
SFR
Telco/ISP
October 2014
US
Catch-up TV
Multiscreen
Belgium
Belgacom
Catch-up TV Sky On
Demand catch-up and
box sets
France
Bouygues
Telco/ISP
20 per month
30 per month
45 per month
95 per month
SOURCE: OVUM
24
OVUM.COM
Up to 152MB
STRATEGIC GOALS
PARTNERING WITH NETFLIX PROVIDES ADDED VALUE,
DRIVING BUNDLED UPSELL OPPORTUNITIES AND
CUSTOMER LOYALTY
Operators without an extensive or comprehensive VoD offering
clearly have much to gain from teaming up with a best-of-
FIG 3
POTENTIAL ADDRESSABLE NETFLIX AUDIENCE AMONG SELECTED PAY-TV OPERATOR PARTNERS
Orange France
5,776
Virgin Media
3,734
Belgacom
1,200
Suddenlink
1,200
Cable One
750
599
Com Hem
300
Midcontinenet
230
Atlantic Broadband
116
GCI
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
OVUM.COM
25
RESULTS
BOOSTING THE CUSTOMER BASE
Neither the operators nor Netflix have reported indicators
around service take-up arising from their service
partnerships. However, it is worth noting the extent of the
pay-TV viewership to which Netflix has become exposed
through such partnerships. As of June 2014, Virgin Media
indicated that 60% of its TV customer base some 2.3 million
homes received its TiVo-powered service. Meanwhile Com
Hem reported 17% penetration (equating to just over 100,000
subscribers) as well as a return to positive growth for its
digital TV customer base in 2Q14.
The overall TV customer bases of some of the operators that
offer (or are preparing to offer) Netflix via their TV customers
STBs are highlighted in Figure 3.
26
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@OVUMTELECOMS
OVUM.COM/linkedin
OVUM.COM
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53
04
DIGITAL MEDIA
Q+A
NICK THOMAS
PRACTICE LEADER
We expect OTT media services such as Netflix for video, Spotify for music and
Steam for video games, to continue to grow in 2015 and as they expand their
footprint. However, we are seeing traditional providers moving into the OTT space
and competing against their new digital competitors. A trend towards consolidation
is also helping traditional providers to compete more effectively. Tier 2 operators
will compete by collaborating with best-of-breed partners to create attractive
bundles of content and services. But only one outcome is certain: As consumers
become increasingly empowered, competition for their attention will intensify.
Absolutely. We see a very strong appetite for such services in emerging markets,
whether in Africa, Latin America, the Middle East or Asia. Primarily driven by
mobile adoption, the market for digital content such as music, video and apps is
potentially huge, although monetising this via either paid or ad-supported models
remains challenging.
Some observers feel that consumers will never pay for digital content and
services, but Ovum doesnt share this view. While monetising digital media
content is challenging there are plenty off companies that are succeeding in
building strong revenue streams from consumers, whether they are selling music,
video, gaming or e-books. Some are global players which offer a whole ecosystem
of hardware and software, but others are niche players which have understood
what their customers want.
Based on what we are seeing in the 50 markets that we track in detail, we expect
digitals share of the whole ad market to grow further. This will be boosted by
the continued growth in mobile advertising and by new measurement metrics
that better reflect actual value. But digital growth is not simply at the expense of
traditional advertising revenue the picture is more nuanced than that. In many
markets, for example, traditional TV or print advertising will continue to dominate
for the next few years. While consumers are undoubtedly spending more of their
time interacting with connected screens, it will be some years before this digital
shift is fully reflected in ad revenues.
FIG 1
DEGREE OF IMPORTANCE OF MEDIA ACTIVITIES, JULY 2014
SUMMARY
According to Ovums new digital media consumer insights
survey, music is an essential part of everyday life for a big
share of consumers, more so than watching TV and playing
video games. The difficulty for much of the recorded-music
sector has been transferring the popularity of music onto
the balance sheet. Streaming is the current poster child
for music industry success, but many questions over the
business models future, such as how much are consumers
prepared to pay for access to millions of tracks, and whether
royalty rates are high enough to satisfy disgruntled artists
remain unanswered.
HOW IMPORTANT IS MUSIC?
Music is unquestionably important to most peoples lives,
regardless of where they are in the world. Although not
everyone spends money on recorded music or buys tickets
to a gig or festival, a very high percentage of people listen
to music on the radio at home or in their car. Restaurants,
shops, and bars use music to create a particular ambience to
encourage people to either relax or feel enlivened to improve
their customers experience.
Just how important music is to consumers was one of the
many questions included in a consumer survey conducted by
Ovum in July. Over a three-week period, 15,000+ consumers
across 15 countries were asked a number of questions
about their media use. In terms of importance, music was
considered essential by 42% of respondents, and important
by a further 43% (see Figure 1).
Although listening to music was less important than browsing
the Internet and reading the news, it was considered more
essential that interacting on social media and watching TV. Only
16% of respondents said listening to music was unimportant.
Comparing the survey findings with the current state of
the recorded-music industry suggests a large proportion
of consumers interest in listening is not being satisfied
by paid-for services. Annual sales of recorded music have
been falling for more than 10 years and 2014 is expected to
add one more to the total number of consecutive years of
annual contraction.
30
OVUM.COM
Watching TV
Watching short videos
Reading the news
Reading a magazine
Reading a book
Playing video games
Listening to the radio
Listening to music
Interacting on social networking sites
Browsing the web
0
20
40
60
80
100
Essential
Important, but not essential
Unimportant
SOURCE: OVUM
FIG 2
FIG 3
Spotify
monthly
revenue
Artists
royalty
rate
5
Nothing I will only use
advertising-funded services
Artist
revenue
SOURCE: SPOTIFYARTISTS.COM
More than 5, up to 10
More than 2, up to 5
Spotify says on its website that that the real measure of its
success is the progress made in convincing consumers to
pay for music again by converting millions of pirates into
monetized users and increasing the total money spent by
paying listeners by graduating them to a much more valuable
form of consumption.
There are, though, plenty of unanswered questions
concerning just how many consumers the streaming services
can convince to pay. Spotify has already published evidence
showing the impact its service has had on piracy: It has given
consumers an alternative to the current myriad of online
music distribution services. However, an interesting finding in
the Ovum consumer insights survey suggests the untapped
number of future paying subscribers is limited.
The average price for most of the leading music subscription
services is $9.99/9.99/9.99 per month for online and
mobile access. Bundled deals by media and telecoms
companies with the leading subscription services can reduce
the price and, in some cases, make access free. Spotify is
currently the global leader in terms of paying subscribers
with 10 million from 57 countries, followed by Deezer with
5 million from 180 countries and Rhapsody with 2 million
from 32 countries. For each of the services, the share of
addressable consumers across their whole footprint taking a
subscription is low. However, the Ovum study found that only
a small share of consumers would be happy to pay the full
price to subscribe to a music service.
Up to 2
0
10
20
30
40
SOURCE: OVUM
OVUM.COM
31
05
PAYMENTS
Q+A
2014 SAW APPLES MUCH-ANTICIPATED ENTRY INTO THE
MOBILE PAYMENTS MARKET WITH APPLE PAY WHAT
IMPACT WILL IT HAVE?
EDEN ZOLLER
PRINCIPAL ANALYST
Location-Based M-commerce:
Trends, Opportunities, and
Challenges
TRENDS AND OPPORTUNITIES
LOCATION DATA BRINGS A NEW DIMENSION TO TARGETING
The value of location is not just in its ability to act as an
enabler for compelling applications, but in its ability to
generate rich data insights that are unique to mobile. Realtime location data can bring a new dimension to targeting.
Location data connects a persons digital activity with the
physical environment, providing a more complete view of
consumer commerce and related behavior, such as how
consumers engage with brands in both the physical and
digital domains.
The real-time aspect of location analytics offers a more
adaptive approach to marketing, enabling a business to
change its marketing and engagement in real time to meet
an individual consumers needs. The value of location can be
further enhanced by adding longitudinal and behavioral data
points to the mix. The objective is to provide a fuller view of a
users contextual location activity over time by incorporating
related insights based on behavioral, demographic, and
historical data.
34
OVUM.COM
provide
genuine value to consumers.
FIG 1
MOBILE TARGETING ATTRIBUTES DESIRED BY BRANDS
FIG 2
REMIT OF LOCATION BASED APPLICATIONS
MARKETING
RETAIL
Loyalty programs
CRM
Coupons and offers
Event/product
promotions
Payments
Payments
Click-and-collect
Delivery/order tracking
In-store search and discovery
In-store navigation
In-store promotions
In-store information
SOCIAL
Crowdsourcing
Messaging
Games
Check-ins
Photo and videos
(geotagging)
SMART CITIES
Access
Local search & discovery
Maps and navigation
Parking
TRANSPORT
Local information
Mapping and navigation
Parking
Public transportation
Road/traffic-flow
management
Turnstiles/road tolls
LOCATION
APPLICATION
DOMAINS
PUBLIC SERVICES
ENTERPRISE
VERTICALS
Fleet management
Delivery/order tracking
Workforce management
Asset tracking
Warehouse
management
Sports
Events
Automotive
Travel and hospitality
Emergency services
Healthcare
Education
People tracking
Weather reports
SOURCE: OVUM
SOURCE: OVUM
OVUM.COM
35
FIG 3
FIG 4
Traditional
Bluetooth
BASED COMMERCE
Bluetooth Low
Energy/
beacons
GPS
Smartphone
Tablets
User-supplied
Magnetic
fields
NFC
Wearable
technology
Embedded
tags
Smart TVs
Point-of-sale
Out-of-home
digital media
Connected
cars
Wi-Fi
Cell-tower
triangulation
Smart cities
LTE Direct
SOURCE: OVUM
Connected
appliances
IP address
lookups
SOURCE: OVUM
36
Desktops/
laptops
OVUM.COM
EMBEDDED TAGS
Embedded tags leveraging NFC or QR codes can be used to
add interactivity to OOH digital and other media touchpoints
in a way that can enhance location-based commerce. A
strategically placed digital-advertising display for a product
can feature an NFC tag that consumers tap to open a link
to a mobile website or application that is designed to drive
location-based commerce. For example, the application might
contain further product information, along with a discount
offer and a map to the nearest store where the product is
found. Applications of this kind are becoming more common
in large cities. The advantage of interactive OOH displays for
advertisers is not just the ability to give consumers additional
information: They can also benefit from the data that NFC
tags can capture, such as date and time. Clear Channel
Outdoor, a leader in OOH advertising, is so convinced by
these benefits that it is linking 75,000 OOH digital and static
displays across 23 markets to Connect, a mobile advertising
platform that supports interactivity via QR codes, NFC tags,
and in emerging markets SMS.
CONNECTED CARS
Vehicles with inbuilt connectivity present a significant
opportunity for location-based commerce that will grow
quickly over the next couple of years. At its simplest level,
marketing messages can be pushed to the connected invehicle navigation screen to promote in-path targeting. For
example, route maps being used for a journey could feature
the locations of retail outlets where a desired product can be
found. Incorporating demographic and behavioral data sets
would allow for personalized targeting, such as messages
sent during a lunchtime drive flagging restaurants and
grocery stores that match a consumers eating preferences.
IN VEHICLE M-COMMERCE APPLICATIONS
Ford Motors is seeking ways to promote in-car commerce
with its Sync AppLink platform, which links to its Sync in-car
command system, enabling drivers to sync with selected
mobile applications that can be controlled via in-vehicle
voice commands. One and a half million Ford cars come
equipped with Sync AppLink. Pizza chain Domino is a major
brand partner, and Ford owners who download the Domino
mobile app can order pizzas while in the car. General Motors
is preparing for an in-car-commerce push via its Chevrolet
AppShop. It has a formed a partnership with online travelbooking agency Priceline to make its travel app available on
most 2015 Chevy, Buick, GMC, and Cadillac models via the
Chevrolet AppShop.
STREAMING RADIO
Location-based marketing opportunities could also be linked
to Internet radio services available with connected vehicles.
In 2013, location specialist Placecast tested location-based,
in-vehicle audio advertising with Aha Radio, a personalized,
Web-based radio-streaming service for mobile devices
that can be synced with connected cars. The trial involved
geofences that when entered by a vehicle would trigger
OVUM.COM
37
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FIG 5
EXPANSION OF THE LOCATION COMMERCE ECOSYSTEM
Smart-TV
manufacturers
Govenments
and local
authorities
Automotive
manufacturers
Digitalsignage
networks
Application
developers
Mobile
operators
Device
manufacturers
Enterprise
verticals
Public Sector
(Health
Education)
Retailers
Large
enterprises
Payment
providers
Technoology/
solution
providers
Advertising
Agencies
Mobile
advertising
networks
OTT players
First Wave
Second Wave
Locationanalytics
specialists
Homeappliance
manufacturers
Third Wave
SOURCE: OVUM
OVUM.COM
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06
INTERNET OF
THINGS
Q+A
FIRST THINGS FIRST: WHAT IS THE INTERNET OF THINGS?
The Internet of Things is a buzzword. Its definition and constituents are expanding
and evolving. All of the companies involved in the establishment of todays ICT
service infrastructure believe they have a pivotal role to play in the IoT. However,
few accurately know what that role will be, or have a realistic estimation of the
size of the opportunity.
The IoT is beset by far more questions than answers. It is a hive of seemingly
contradictory developments. The interconnectivity of the world around us will be a
combination of the ad-hoc with the deliberately structured. The enablement of the
underlying fabric of society through connectivity will be both transformative as
well as barely noticeable should it be executed correctly.
JAMIE MOSS
SENIOR ANALYST
42
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RECOMMENDATIONS
The industry must break out of its silos: A key barrier to
growth is the limited interoperability between devices
and ecosystems. Each device is connected through a
separate app to a single hub device (e.g. a smartphone),
which means increased cost and less functionality for
the consumer. Open-source initiatives are an important
step in the right direction, but stakeholders need to
better communicate the benefits to consumers. The other
important point is to make the technology accessible to
people who might not be as able to use a smartphone,
such as the elderly or the disabled.
Build on a number of interlocking technologies: Given
the proliferation of technologies and proprietary
standards, consumer IoT should not rely on a single way of
connecting. Different technologies will have their own use
cases, depending on which devices they connect to. Wi-Fi,
for example, is better suited to stationary, data-heavy
devices, while Bluetooth is better for wearable devices,
such as fitness trackers and smart watches.
MARKET STATUS
The Internet of Things has been the object of much discussion
for years, but it remains a fragmented set of verticals rather
than a true market. It can be divided into two main segments,
consumer and industrial, which are for the most part
exclusive and which each encompass a variety of activities
(see Figure 1). Perhaps unsurprisingly, the consumer side has
received the most interest from operators and customers,
relating as it does to the connected home, connected car, and
wearable devices. As a result, this analysis will focus primarily
on the consumer IoT market in the US, in the interest of
providing enough focus to explore the area in depth.
Consumer IoT is still relatively fragmented. The challenge for
stakeholders, whether they are operators, OEMs, standards
bodies, or retailers, is to bring each strand together, using
the technology that consumers already own. The popularity
of smartphones has done much to enable that process,
by bringing connectivity to widespread standards and by
bringing technologies such as cellular, Wi-Fi, and Bluetooth
into a single device. The ability to download apps to connect
to specific devices or IoT services also makes it easier to
FIG 1
CONSUMER AND INDUSTRIAL IOT VERTICALS
CONSUMER IOT
Wearables
Connected Home
Connected Car
Beacons
Fleet Management
Smart Metering
Production Line
Management
Patient Monitoring
INDUSTRIAL IOT
SOURCE: OVUM
control devices that use standards that are not built into
smartphones, such as ZigBee or Z-Wave.
Stakeholders have gotten involved in certain consumer IoT
verticals according to their specific strengths. For instance,
mobile operators and smartphone manufacturers have been
active particularly in promoting connected-car offerings, with
AT&T adding LTE connectivity to a number of General Motors
car models. At the same time, Apples CarPlay and Googles
soon-to-be-released Android Auto offering enable users
to connect and use their smartphones safely while driving.
Core features include navigation, text-message playback and
composition (using voice commands), and music control.
Wearables and beacons are also growing in popularity, thanks
to the ubiquity of smartphones and the introduction of new,
low-energy versions of Bluetooth, most recently Bluetooth
Smart. Apple was the first company to use beacons on a large
scale, deploying its iBeacons in its own retail stores to detect
the proximity of iOS devices and perform actions accordingly.
Meanwhile, fixed-broadband providers, electronics
companies, and home-security firms have entered the
connected-home and home-automation markets. Security
firm ADT reports that almost 14% of its 6.4 million customer
accounts are signed up to its ADT Pulse home-automation
service, and AT&T has launched its Digital Life home-security
and -automation service in 81 markets across the US.
Barriers to entry in the connected-home market are still
high. One reason is the array of technologies used to connect
MARKET DYNAMICS
One way to organize the different technologies involved in
the Internet of Things is to use different technologies for
different functions or types of devices. For instance, Wi-Fi is
better suited to connecting stationary, data-intensive devices
such as smart appliances, while Bluetooth works for devices
worn on the body (the personal area network). Cellular
connections, in the form of M2M, are typically used for smart
metering and security applications (see Figure 2).
This system of organization, however, is just the first step.
Each connected device typically operates through its own
app, meaning that consumers have to navigate multiple apps
to control different functions in their home or personal area
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43
FIG 2
CONNECTED-HOME TECHNOLOGIES BY APPLICATION
WiFi
Bluetooth
ZigBee /
Z-Wave
Cellular
STATIONARY OBJECTS
LIGHTWEIGHT DEVICES
PROPRIETARY STANDARDS
M2M
Wearables
Speakers
Mesh networking
Home automation
Remote controls and
security sensors
Smart meters
Security applications
MORE STATIONARY
MORE MOBILE
SOURCE: OVUM
44
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TABLE 1
US, CONNECTED-HOME AND HOME-SECURITY OFFERINGS
COMPANY
CONNECTED-HOME OFFERING
ADT
Pulse
AT&T
Digital Life
Comcast
Xfinity Home
Time-Warner Cable
Intelligent Home
DirecTV
LifeShield
Cox
Home Security
SOURCE: OVUM
MARKET OUTLOOK
According to Ovum forecasts, the number of M2M connections
in North America is expected to exceed 77 million at end2019, when it will be worth $11.9bn in annual revenue. These
figures, however, do not include devices that connect via
other technologies, such as Bluetooth or Wi-Fi. Estimates of
the future annual revenue of the Internet of Things are in the
trillions of dollars, with billions of connected devices expected
by 2020. Yet take-up remains slow, with growth inhibited
mainly by a lack of understanding among both consumers and
manufacturers of what the IoT is and what it does.
The phrase Internet of Things is partly to blame, since
it obscures the fact that the devices in connected homes
and cars and wearables should be able to communicate
with one another, rather than only with the Internet or the
cloud. Qualcomms AllJoyn and Intels Open Interconnect
Consortium projects are intended, separately, to address that
problem, by simplifying the development and onboarding
processes and pulling in partners from across the industry to
ensure that devices are mostly compatible with one another.
Most stakeholders are in agreement that whats needed to
spur growth in the Internet of Things is a killer enabler, rather
than a killer app. Many point to Apples iPhone as the enabler
for the App Store, which allowed third-party developers to
create apps, turning the iPhone into a device with functions
completely unrelated to its original design as a phone
whether a spirit level, a flute, or a calorie counter. As the
IoT Consortium puts it, if the Internet of Things is to be truly
successful, it will need to enable totally new experiences.
OVUM.COM
45
07
Q+A
FACEBOOK CLOSED ITS MULTI-BILLION-DOLLAR
ACQUISITION OF WHATSAPP IN OCTOBER 2014. WHAT
WILL THIS ACQUISITION AND THE CONTINUING
POPULARITY OF THIRD-PARTY MESSAGING AND VOIP
APPS MEAN FOR MOBILE OPERATORS IN 2015?
PAMELA CLARK-DICKSON
SENIOR ANALYST
WeChat, Kakao, Line, Viber, and Tango, among others, have rapidly diversified their
messaging and VoIP apps in order to generate revenues. Variously, the companies
have added monetization features oriented towards consumers and the enterprise
market. The former category includes games, digital content, and payments
(premium SMS, carrier billing), while the latter includes payments, marketing, and
promotions. While mobile operators have had some experience in providing their
consumer customers with content, we believe that operators would have more to
gain by first of all enhancing their core communications platforms for consumers,
and then opening up access to these enhanced communications platforms to
enterprises in order to facilitate access to consumers, whether that be a thirdparty content provider seeking to sell content to a mobile user, or a contact center
wishing to use an enhanced voice service to communicate with a customer.
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08
SMARTPHONES
Q+A
WITH SMARTPHONE ADOPTION SLOWING DOWN AND
TABLET SALES DECLINING IN SOME PARTS OF THE
WORLD, ARE WE REACHING THE END OF A GOLDEN AGE
FOR MOBILE DEVICES?
Indeed, we are seeing evidence of market saturation in some parts of the world.
For example, Ovum expects UK smartphone connections to grow by only 5.2%
in 2015, down from 14% two years earlier. However, this is not necessarily due
to a lack of consumer appetite for mobile devices but rather a shift of spend
between different types of consumer electronics. Overall spend per consumer
on devices is finite and tends to grow at a slow pace, driven by macroeconomic
factors. Each time a new device segment is created (such as tablets or wearables),
it undoubtedly cannibalizes existing segments such as PCs or portable game
consoles. Looking ahead, the tablet market is unlikely to regain its former glory,
but we may be entering the Bronze Age for smart wearables.
RONAN DE RENESSE
LEAD ANALYST
Apple stands to remain a winner in 2015 thanks to its new iPhone and iPad lineup
and its entry into the wearables market. Apple is likely to capture most of the
wearables market value thanks to its very loyal early adopter fan base.
The corporate mobile market is relatively underserved, especially in the tablet
space, and key player BlackBerry continues to lose market share to Apple, which
entered a partnership with IBM earlier this year. Microsoft is making Office
available for free on iOS and Android, which should open the door for tier-2 mobile
brand devices to be used in a work environment. Lenovo, for instance, is likely
to leverage its acquisition of Motorola to develop a strong mobile offering to its
corporate customers from the PC business.
2015 will also see a stronger influence from consumers in technology and device
adoption, primarily through crowdfunding. Websites such as Kickstarter and
Indiegogo significantly reduce the barriers to entry for technology start-ups, and
not just in the US. Indiegogo grew 300% year on year in Europe in 2013, and 700%
in the UK alone. We will certainly see a few rising stars coming from crowdfunding
websites in 2015.
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OVUM.COM
used once and then never again. The health and fitness apps
look nice but dont improve significantly on other existing
(and cheaper) solutions for those with more than a passing
interest, although the Apple versions will thrive if the various
major players (Nike, Fitbit, Garmin) get behind the apps
ecosystem.
ITS STILL BETA-LEVEL TECHNOLOGY THOUGH
So what could stop Apple succeeding? Well, obviously the
price (and remember that is starting from and youre also
going to need an iPhone) and that vague, distant release date
of early 2015. Expect to see the top-end Apple Watches
easily exceeding $500.
Also, aside from an all day quip by Tim Cook, there was
no word on battery life. Given that similar watches with
fewer capabilities are tapping out at 12 hours, with only the
bulky Samsung Galaxy Gear S doing somewhat better, its
unlikely the Apple Watch will do much better. The form factor
and nature of todays chipsets (many still designed with
smartphones in mind) simply cant accommodate largercapacity batteries and/or more measured performance. This
is still the major deal breaker for mass adoption: sure, tech
firms have trained us to charge our phones every day, but
devices like watches, fitness bands, and glasses need multiday capacities.
It was also disappointing after all the talk of personal
devices, freedom, and flexibility that an iPhone is needed to
make Apple Watch work. While full phone functionality (a la
Samsung Galaxy Gear S) may be too much to ask, something
that would work stand-alone at least some of the time would
have been a nice option. The watch even relies on the iPhone
for GPS, meaning people looking to use it for fitness will still
have to lug their iPhone around if they wish to use the watch
for navigation and to track their routes.
GET READY FOR REAL INNOVATION IN 2015
Todays wearable technology is still largely based on
components designed for smartphones or other embedded
applications, which means extra bulk, inflexible power
options, and/or limited functionality. But as ARM, whose core
processors power at least 95% of wearables, will tell you,
this will change as newer, tailored components reach the
manufacturers.
OVUM.COM
53
09
MOBILE
NETWORKS
Q+A
WEVE HEARD A LOT ABOUT THE INTEGRATION OF
CELLULAR AND WIFI IN RADIO ACCESS NETWORKS. ARE
WE GOING TO SEE ANY MAJOR LAUNCHES IN 2015? AND
WHAT WILL THE SERVICE FEEL LIKE FROM AN END-USER
PERSPECTIVE?
Hotspot 2.0 launches are under way with the likes of Boingo, but they are small in
scale. In 2015 we will see Hotspot 2.0 become more widely available, especially in
North America, parts of Asia, and Western Europe. Hotspot 2.0 benefits end users
by making the network logon process automatic. The device will automatically
select an associated access point and enter the users credentials. This is an
improvement over the current situation where the end user has to open the Wi-Fi
client, select the appropriate network, and enter their credentials.
DARYL SCHOOLAR
PRINCIPAL ANALYST
The challenge with LTE-A is that it wont be applied ubiquitously across all networks,
or even within an operators footprint. Carrier aggregation, which increases network
bandwidth, will have the most notable impact on the end-user experience, and it will
be the LTE-A feature that mobile operators will most likely market.
Other features such as coordinated multi-point and enhanced inter-cell interference
coordination (eCIC) help create a more consistent end-user experience at the cell
edge. The end user will benefit from these enhancements, but most likely wont
actually realize those enhancements have been implemented.
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FULL DUPLEX
All existing mobile communication networks rely on a
duplex mode to manage the uplink and downlink. There are
frequency duplex or FDD schemes (such as LTE, where uplink
and downlink are separated in frequency) and time duplex or
TDD schemes (where the transmitter and receiver transmit
at different points in time, as in TD-LTE). A duplex mode is
necessary to coordinate uplink and downlink, but full-duplex
technologies are now being discussed. In these schemes,
a device transmits and receives at the same time, thus
achieving almost double the capacity of a FDD or TDD system.
This approach would entail major technology challenges
requiring what is essentially self-interference cancellation
and major changes in both networks and devices. However,
the potential increase in overall capacity is substantial.
MM-WAVE
Lower-frequency spectrum (450MHz2.6GHz) which is
currently relevant for mobile communications is almost
fully congested. Massive amounts of spectrum are available
in the higher spectral bands, which may reach up to 300GHz.
Naturally, network design for such high frequencies is much
more complicated than operators are accustomed to: as
frequency increases, building penetration becomes more
difficult, to the point where a simple wall becomes an opaque
barrier for mm-wave signals. However, tens of GHz are
available in these bands that may be used for short-range,
point-to-point, line-of-sight connections, providing much
higher speeds for wireless connectivity.
Mm-wave could be used by indoor small cells (in line with the
extreme densification principle outlined above), which would
provide very-high-speed connectivity in confined areas. The
high-frequency nature of mm-wave means antennas can
be very small, thus creating only a small impact on device
real estate. Nevertheless, Ovum believes mm-wave is an
extremely radical technology and may require many years of
R&D to be made cost-effective for the mass market.
Note that developments in mm-wave are not new: the
WiGig alliance, founded in 2009, is now focusing on 60GHz
spectrum, and in June 2014 Google announced the acquisition
of Alpental, a start-up founded by ex-Clearwire engineers
that has been developing technology for the 60GHz band.
MASSIVE MIMO
MIMO has been deployed in LTE-Advanced networks, where
the base station and end-user device uses more than a single
antenna to increase link efficiency. Massive MIMO refers to
the network, where the base station employs a much higher
number of antennas that create localized beams around each
connected device. The gains in capacity are enormous, but
so are the technical challenges associated with this concept.
However, the market is showing new interest in these
concepts, exemplified by a start-up called Artemis, which has
developed a product called pCell based on this technology.
OVUM.COM
57
10
FIXED
NETWORKS
Q+A
THERE HAS BEEN A LOT OF INNOVATION IN TERMS OF
FIXED BROADBAND ACCESS TECHNOLOGIES IN THE LAST
YEAR. WHICH ONES WILL ACHIEVE COMMERCIAL SUCCESS
IN 2015?
The fixed broadband access toolbox is finally full. In 2015, we will see vectoring
trials turn into commercial deployments. We will see initial deployments of g.fast.
We will also see 10G PON deployments in selected countries along with a few
trials of TWDM PON.
It is important to understand that broadband access is not one size fits all
multiple solutions are a must. The market is affected by government regulation,
such as LLU, along with competitive forces, economic growth, subscriber demand
for high-quality content, and the quality of copper lines. There is no single access
technology that meets an operators plans across any country. Operators are
adopting multiple solutions to meet the varying needs of customers while meeting
government regulations.
JULIE KUNSTLER
PRINCIPAL ANALYST
Some cable operators are pushing forward on speed gains downstream and
upstream. They are adopting a variety of solutions to enable speed gains and to
make upgrades more economical. It will be interesting to see how Vodafone will
use its acquired cable assets to pursue fixedmobile convergence. In the US, we
are seeing several cable operators adopt FTTx PON solutions, including 10G EPON,
in order to compete with telecoms operators.
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11
TELCO CLOUD
Q+A
WHAT ARE THE KEY DRIVERS/OPPORTUNITIES FOR
SERVICE PROVIDERS THAT ARE CONSIDERING NFV?
CONVERSELY, WHAT ARE THE KEY CHALLENGES?
The biggest opportunity driving CSPs to adopt NFV or SDN is the ability to operate
a more efficient and cost-effective network. Also, NFV and SDN make it much
easier and faster to create and deliver services. The biggest argument for NFV
is that it enables network components to make the transition from hardware
to software. In other words, components now run on commoditized hardware
platforms that might even be in the data center (standard computing platforms or
COTS equipment).
The challenge is to find a tangible and clear business case apart from cost savings/
efficiency alone, meaning that new revenue opportunities have to be clear if
operators are to invest heavily in these technologies. Also, replacing equipment
that has not reached the end of its life might be a challenge for the time being,
especially given the tough economic environment.
DIMITRIS MAVRAKIS
PRINCIPAL ANALYST
Software-centric Networks
Changing CSP Business Models
SUMMARY
IN BRIEF
Change is coming to communication service provider (CSP)
networks, because it has to: a more flexible, intelligent
network is fast becoming a strategic imperative for leading
CSPs. Until recently, network flexibility was largely limited
to automating specific tasks in a network, and these tasks
were not tightly coupled with overall business processes.
With software-centric networking, CSPs will be able to offer
services that are differentiated by the architecture and
flexibility of their network, and fully integrated with their
OSS/BSS systems, rather than simply providing connectivity.
While software-defined networking (SDN) and network
functions virtualization (NFV) technologies are at the core of
this upcoming change to networks, the real transformation
is all-encompassing, involving every aspect of CSP business
models.
OVUM VIEW
For leading CSPs, connectivity and capacity are no longer
enough. Increasing demand for personalized cloudbased services will require CSPs to deploy more flexible,
intelligent networks.
Changes in networking are more than just a technology
issue. SDN and NFV are at the heart of this change,
but the real transformation in networking involves all
aspects of the CSP business model, including business
processes, sales, marketing, revenue recognition,
operational methods and procedures, corporate
culture, organizational structure, and even the career
paths of staff. Ovum believes successfully navigating
these changes will be more difficult, and more
important to the future of these organizations, than
any technology migration.
With software-centric networks, a spotlight shines on
Intel. As the dominant vendor for processors used in
servers, Intel will play an important role in the evolution
of networks. The company has recognized this role and
is already investing in supporting the development of
software-centric networks.
The move to software-centric networks has changed
the culture of the industry. Technologists working in
networking are adopting architecture, technology, and
development approaches established in the IT industry.
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OVUM.COM
SDN and NFV will change the landscape of the service provider
industry; how networks are designed and operated, and how
services are delivered and sold. However, there is still no outof-the-box SDN or NFV solution, no one-size-fits-all model for
software-centric networks. Rather than wait for standards to
develop and definitions to become clear, vendors have moved
forward with a variety of approaches to bring flexibility to
networks under the banner of SDN and NFV. While there are
initial deployments today, SDN and NFV technology have so
far had a limited impact on vendor revenues. Ovum believes
the transition to software-centric networks will be gradual,
with the full impact of these technologies not felt in the
market for two to five years, so service providers and vendors
still have time to get in the game.
CSPS DRIVING INDUSTRY CHANGE TO SOFTWARE-CENTRIC
NETWORKS
The transformation to software-centric networks is
happening on a global basis. Thats largely because CSPs
around the world see the network agility, time-to-market, and
cost benefits that will accrue from adoption of this technology
and are taking an active role in driving this change.
CSPs developed the first NFV white paper and followed up by
forming the NFV ISG to promote and standardize deployment
of this technology. AT&T with its User-defined Network Cloud,
NTT with its SDN-based Enterprise Cloud Service, Deutsche
Telekom with its virtualized IPv6-based TeraStream project in
Croatia, and Telefonica with its UNICA project have all made
very public pronouncements of their intention to migrate to
software-centric networks with SDN and NFV technologies.
Many other CSPs are moving in the same direction.
CSPs have also signaled their intention to reevaluate their
vendor relationships as SDN and NFV matures and are
evaluating innovative technology introduced by smaller
vendors. All the major carriers are involved in evaluating and
trialing SDN and NFV, and we expect these efforts to increase
through 2014 and into 2015.
THE ROLE OF SOFTWARE IN ENABLING CHANGE
Moving from software that is vertically integrated within
network elements to a software-centric architecture elevates
the role of software in networking. This heavy reliance on
software in future networks will have a major influence on how
CSP operations and networks evolve. To start with, software
reduces the barriers to entry and therefore opens the door to
new entrants. Some of these new entrants are vendors moving
from adjacent markets, including vendors from the IT market
such as Oracle, HP, IBM, and Dell. Other new entrants are
smaller vendors and start-ups that previously would have had
a hard time entering the CSP market.
The communications industry needs to move to an
environment that more readily supports rapid change.
Software has enabled such change in the IT market, and
software will bring new approaches to networking. The
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TABLE 1
INTELS NETWORK BUILDERS ECOSYSTEM PARTNERS
6Wind
AdLink
Advantech
Akamai
Alcatel-Lucent
Calsoft Labs
Altobridge
Amartus
Aricent
Arista Networks
Brocade
Clavister
Connectem
ConteXtream
Cyan
Dell
Erudine
F5
HCL Technologies
HP
Huawei
Indeni
IneoQuest
McAfee
Ixia
JDSU
Kontron
Lanner
Link Analytics
Mobivita
NEC
Netrounds
Neusoft
Nexcom
Nokia
Openet
Oracle
Overture
Pluribus
Procera Networks
Qosmos
Quanta
RAD
Radcom
Radisys
Red Hat
Saguna Networks
Saisei
Sandvine
Sideband Networks
SpiderCloud
Spirent
Supermicro
Tail-f
Tango Networks
Tech Mahindra
Tektronix
Tieto
Topsec
Vantrix
VMware
Wind River
Wipro
Yanzi
ZTE
SOURCE: OVUM
coming to communications networks and the role that Intelbased processors can play in this evolution. The company
is investing in specialized processors, software, reference
designs, and development of a large ecosystem based on its
products to support this new direction in networking.
Intel introduced its Highland Forest processor family in
December 2013, specifically to power higher-performance
network traffic requirements for SDN and NFV deployments.
Highland Forest processors are available with 410 CPUs and
incorporate Intels Coleto Creek communications chipset to
accelerate encryption and compression algorithms used in
packet processing. Intels data plane development kit (DPDK)
includes software libraries and drivers to support fast packet
processing. To enable rapid development of new networking
hardware platforms, Intel has introduced reference designs
for switches and servers based on its silicon. To make it
easier for vendors to bring transformative software-centric
networking products to market, Intel formed its Network
Builders program ecosystem to foster collaboration around
Intel technology.
Table 1 lists over 60 partners in Intels Network Builders
ecosystem, a list that illustrates the range of vendors
developing SDN and NFV technology. A few vendors
notable for their absence from this group include Big
Switch, Cisco (although Cisco acquired Tail-F in July 2014),
Ericsson, and Juniper.
THE RISE OF OPEN NETWORKING AND THE DEVELOPMENT
OF ECOSYSTEMS
Ovum believes software-centric technologies are clearly
the future direction for enterprise, data center, and service
provider networks. With the rise of SDN and NFV, the genie
has been let out of the bottle. Over time the networking
environment will become more open, but a fully open
framework, where networking products comply with open
standards and plug-and-play together, is not likely to happen
for many years.
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PAUL LAMBERT
Senior Analyst
LAXMAREDDY
VITTALAPURAM
Research Analyst
ARI LOPEZ
Principal Analyst
RICHARD MAHONY
Director Research &
Analysis
RAY MALEKOUT
Market Forecaster
TAREQ MASARWEH
Principal Analyst
NIDHIR MAUDGALYA
Principal Forecaster
DIMITRIS MAVRAKIS
Principal Analyst
THECLA MBONGUE
Senior Analyst
CLARE MCCARTHY
Practice Leader
NICOLE MCCORMICK
Principal Analyst
CAMILLE MENDLER
Lead Analyst
CHARLOTTE MILLER
Research Analyst
DAVID MOLONY
Principal Analyst
CHARLES MOON
Practice Leader
JAMIE MOSS
Senior Analyst
NIKHIL NANDANWAR
Analyst
RAVI NEELAM
Research Analyst
MARK NEWMAN
Chief Research Officer
DANSON NJUE
Research Analyst
EMEKA OBIODU
Principal Analyst
ADAORA OKELEKE
Research Analyst
PANKAJ PAINULY
Research Analyst
ISMAIL PATEL
Research Analyst
KRISTIN PAULIN
Senior Analyst
CARRIE PAWSEY
Senior Analyst
MICHAEL PHILPOTT
Practice Leader
NIGEL PUGH
Principal Consultant
FRANCESCO RADICATI
Senior Analyst
IAN REDPATH
Principal Analyst
MATTHEW REED
Practice Leader
RONAN DE RENESSE
Lead Analyst
BRIAN RIGGS
Principal Analyst
MIKE ROBERTS
Practice Leader
JAMES ROBINSON
Research Analyst
VIVEK ROY
Research Analyst
MIKE SAPIEN
Principal Analyst
LUCA SCHIAVONI
Research Analyst
DARYL SCHOOLAR
Principal Analyst
ALLA SHABELNIKOVA
Research Analyst
GARETH SIMS
Head of Forecasting &
Financial Analysis
RASHMI SINGH
Research Analyst
CRAIG SKINNER
Senior Consultant
SANDEEP SUKHAVASI
Analyst
KRIS SZANIAWSKI
Lead Analyst
DOMINIC TAIT
Managing Editor
DARIO TALMESIO
Practice Leader
ADAM THOMAS
Principal Analyst
NICK THOMAS
Practice Leader
PAULINE TROTTER
Principal Analyst
SHAILENDRA UPADHYAY
Research Analyst
ROHIT VELURY
Research Analyst
SUBRAMANIAN
VENKATRAMAN
Lead Analyst
MATT WALKER
Principal Analyst
IAN WATT
Principal Consultant
KEVIN WHITE
Consulting Director
LANG XIAO
Research Analyst
EDEN ZOLLER
Principal Analyst
@OVUMTELECOMS
OVUM.COM/linkedin
OVUM.COM
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51
12
ENTERPRISE
SERVICES
Q+A
WHAT DO YOU EXPECT TO BE THE MOST VIBRANT
SEGMENTS OF THE ENTERPRISE SERVICES MARKET IN 2015?
At Ovum, weve been tracking the enterprise services market for two decades.
Its becoming more difficult to pinpoint annual trends, because businesses large
and small are beginning to treat their service providers more as partners than as
mere vendors. This means that in some cases, investments span two- to five-year
contract periods, even for smaller businesses. Of course most enterprises still
think primarily of telcos as vendors, but the partner-led approach is just beginning
to take root beyond the largest companies in the most developed markets.
Therefore, to identify the really interesting trends, its best to consider what sorts
of services enterprises with a partner-led approach are planning to consume.
Three come to mind. First, collaboration. The impact of consumer communications
applications, the need to refresh aging enterprise communications infrastructure,
and the availability of next-generation communications services from telcos
have created an opportune moment for businesses to consider how they enable
their employees to work. Expect more businesses to ask providers to help them
offer workspace services (whether they call them this or not) for a mobile, social
generation of employees.
The second has to be machine to machine (M2M). You know when you start seeing
billboard advertisements from the usual clan of systems integrators and software
vendors in airports, touting how M2M can transform businesses, that its time
to seriously consider what M2M can and cant do for ones business. Hype
aside, we are seeing the maturation of M2M ecosystems for applications such as
fleet and asset management, alarms and surveillance, digital signage, and POS
among others. These are now available not just for large firms willing and able to
fund bespoke solutions, but for companies of all sizes. This is because telcos (and
others) are industrializing them. We are witnessing the democratization of M2M.
The third is cloud. However, cloud is not monolithic it is not a thing or a solution.
Its a way to consume all sorts of ICT services. But more on that in a moment.
EVAN KIRCHHEIMER
PRACTICE LEADER
not necessarily guarantee success. There are many variables, including how telcos
adapt to become more partner-friendly and open to application developers, and
how they equip their sales teams with the skills to sell such services, as well as
whether and how they build professional services and consultancy teams to
advise enterprise clients.
The verdict? Well, the jury is still out. However, given telcos heritage, any strategy
based primarily on secure connectivity is likely to win the day.
72
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Market forecasts
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HEAD OF FORECASTING &
FINANCIAL ANALYSIS
Nidhir Maudgalya Research Analyst
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13
ASIA
Q+A
CHARLES MOON
PRACTICE LEADER
At first glance, Asias mobile and fixed broadband markets look quite flat. We are
forecasting between 6% and 8% subscription growth over the next year. What
the top-line numbers dont reveal is that large segments of the population will
be upgrading to 4G in developed markets, nor does it show how many first-time
smartphone buyers will be coming online. In terms of broadband, fiber is the main
story, as China continues to see widespread rollouts across its major cities.
Certainly LTE is having an impact in terms of usage as the demand for video
remains, and providing faster pipes will allow people to consume more data.
Are operators able to charge more for the additional usage? I dont think this is
the case. Yes we have seen ARPU increase for various operators (LGU+ in Korea
is probably the most prominent example) as they move to LTE, but the ARPU is
coming from consumers upgrading to more expensive plans in order to get a free
device rather than an appetite to pay more for data.
This implies a huge opportunity for telcos to boost revenues on the back of
increased demand for data. The main issue that continues to plague not just Asian
operators but most others around the world is the impact of competition. As
competition for upgrading these consumers intensifies, pricing is likely the first
thing that will suffer.
14
EUROPE
Q+A
WHAT SORT OF SHAPE IS THE EUROPEAN TELECOMS
MARKET IN AS WE LOOK AHEAD TO 2015?
DARIO TALMESIO
PRACTICE LEADER
European operators have improved their pricing innovation capabilities: multidevice and family plans are becoming more popular in Europe, and fixed-mobileTV bundling is surfacing all over. European telecoms are preparing for a multidevice market and trying to position themselves as the focal point for Internet of
Thingsrelated connectivity and service.
Music and online TV services are featuring in most hard bundling activities
that is, in a way that customers cannot buy a subscription without the service
although occasionally operators are able to sell online services to their customers
and charge them on behalf of OTT players for a commission.
Speed-based mobile and fixed data pricing differentiation continues to be widely
used across Europe, while the trend towards unlimited voice and messaging
continues to grow. In an effort to differentiate their price plans, mobile operators are
bundling new services, typically for roaming and IDD (international direct dialing).
15
AMERICAS
Q+A
MIKE ROBERTS
PRACTICE LEADER
A. In the US mobile market T-Mobile has stolen the headlines with its Uncarrier
initiative, which it launched in March 2013 and continued throughout 2014.
Under the initiative, T-Mobile has launched service innovations roughly once
per quarter, including the elimination of service contracts and the introduction
of free data roaming and free music streaming services. T-Mobiles share of US
mobile subscriptions increased from 12.7% in June 2013 to 14.3% in June 2014, and
revenues increased 15% in the year to the end of 2Q14.
We forecast that fixed broadband revenues in the US will increase to $69.4 billion
in 2015, up from $67.0 billion in 2014, as fixed broadband subscriptions increase
to 98.9 million households in 2015, up from 96.6 million in 2014. Similarly US
mobile revenues will rise to $203 billion in 2015, up from $199 billion in 2014, as
connections increase to 355 million in 2015, up from 344 million in 2014.
16
MIDDLE EAST
& AFRICA
Q+A
MATTHEW REED
PRACTICE LEADER
The Middle East and Africa continue to be high-growth markets for telecoms.
Over 2014, Ovum expects the number of mobile subscriptions in Africa to
increase by 9.7% and mobile subscriptions in the Middle East to increase by 4.9%,
compared to a world average of 3.5%. Nevertheless, growth rates in terms of
subscription numbers in the Middle East and Africa are declining as the markets
become more mature.
The mobile content sector has also become quite busy, and there have been
several new partnerships between operators and OTT content providers, with
operators hoping that providing content will encourage customers to use data
services, while content providers seek wider distribution. When Vodafone Qatar
launched LTE in mid-2014, it also introduced a content package with services from
Middle East music-streaming outfit Anghami and broadcaster OSN. In Nigeria,
MTN saw a big rise in its mobile content revenues after it tied up with local
providers such as Afrinolly. Airtel has launched Facebooks Internet.org app, which
provides zero-rated access to a suite of Internet services, in Kenya and Zambia.
Regional Data
TABLE 1
LTE SHARE OF TOTAL MARKET IN LEADING COUNTRIES* WORLDWIDE, DECEMBER 2010 TO DECEMBER 2015
COUNTRY
DEC 11
DEC 12
DEC 13
DEC 14
Korea
2.00%
29.28%
51.69%
Australia
0.30%
5.65%
21.92%
Singapore
0.01%
6.26%
0.88%
Japan
DEC 10
0.00%
Hong Kong
DEC 15
COUNTRY
69.89%
81.91%
Qatar
39.76%
53.30%
Brazil
22.47%
37.47%
52.12%
Kazakhstan
0.36%
0.56%
1.53%
9.53%
26.64%
39.80%
51.46%
Slovak Republic
0.04%
0.54%
1.52%
0.24%
6.34%
16.15%
35.64%
50.89%
Kenya
0.30%
1.52%
1.45%
Sweden
0.03%
0.22%
4.90%
10.24%
19.87%
28.88%
Russia
Norway
0.04%
0.08%
1.68%
12.87%
21.08%
28.20%
Colombia
4.96%
13.01%
20.65%
Nigeria
New Zealand
Canada
6.08%
11.69%
15.07%
20.06%
Peru
Kuwait
0.38%
8.92%
15.18%
18.70%
India
UK
0.33%
3.66%
11.34%
18.53%
Tunisia
0.99%
14.21%
12.97%
17.91%
Czech Republic
0.31%
5.60%
10.74%
16.59%
Poland
0.26%
Switzerland
Finland
0.02%
0.12%
DEC 10
DEC 11
0.09%
DEC 12
DEC 13
DEC 14
DEC 15
0.79%
1.26%
2.00%
0.50%
0.97%
1.63%
0.28%
0.61%
0.91%
0.10%
0.38%
0.75%
1.41%
0.04%
0.37%
1.30%
0.00%
0.01%
0.93%
0.01%
0.28%
0.91%
0.34%
0.81%
0.00%
0.03%
0.17%
0.16%
0.74%
0.01%
0.30%
0.70%
France
0.01%
5.57%
9.70%
14.98%
Uganda
0.00%
0.14%
0.18%
0.69%
Netherlands
0.01%
3.87%
9.32%
14.09%
Tanzania
0.00%
0.01%
0.24%
0.54%
9.34%
13.37%
Chile
0.09%
0.17%
0.41%
0.20%
0.40%
Austria
0.00%
0.07%
0.36%
0.55%
Denmark
0.01%
0.09%
0.99%
4.26%
7.71%
12.70%
Morocco
1.53%
6.15%
9.22%
12.42%
Argentina
0.06%
5.76%
9.95%
Mexico
3.32%
5.63%
9.58%
2.34%
4.70%
Croatia
China
Germany
0.00%
0.13%
0.74%
Spain
Estonia
0.38%
0.00%
0.17%
0.16%
0.36%
Senegal
0.02%
0.15%
0.32%
8.72%
Thailand
0.07%
0.13%
0.27%
0.02%
0.07%
0.22%
0.22%
2.46%
5.04%
8.24%
Philippines
Portugal
0.02%
0.86%
4.32%
7.43%
Bangladesh
0.22%
Slovenia
0.16%
2.85%
3.85%
6.81%
Ukraine
0.20%
1.44%
2.86%
5.60%
Pakistan
0.02%
0.15%
0.01%
0.65%
2.75%
5.29%
Cambodia
0.06%
0.14%
0.15%
1.99%
3.24%
5.16%
Indonesia
0.04%
0.13%
Serbia
0.03%
0.11%
0.01%
0.04%
Malaysia
Italy
Saudi Arabia
0.01%
UAE
0.02%
0.12%
2.00%
3.24%
5.16%
0.23%
1.55%
2.71%
4.71%
Hungary
0.32%
1.66%
2.96%
4.69%
South Africa
0.02%
1.19%
2.28%
3.96%
0.09%
1.89%
3.88%
Greece
Ireland
Taiwan
Lithuania
0.05%
0.31%
1.25%
Latvia
0.08%
0.15%
0.38%
1.66%
3.72%
2.16%
3.08%
1.71%
3.03%
Ghana
1.22%
2.93%
Israel
1.23%
2.60%
1.59%
2.40%
Romania
0.04%
0.97%
*This list only includes those countries whih will have launched LTE by December 2015
SOURCE: OVUM
84
OVUM.COM
0.01%
0.03%
TABLE 2
TABLE 4
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Japan
COUNTRY
30.1
28.2
28.5
28.3
27.5
USA
COUNTRY
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
20,811
21,227
22,030
22,612
22,888
Canada
25.0
24.9
26.0
26.0
25.2
Norway
23.3
22.3
23.2
23.0
25.0
China
11,653
13,563
14,051
14,668
14,424
Japan
12,164
11,581
11,842
11,886
USA
20.6
20.8
21.4
21.8
11,634
21.9
UK
3,228
3,187
3,287
3,443
Australia
22.1
22.0
21.0
3,537
21.4
20.8
Korea
2,424
2,567
2,612
2,717
3,007
Ireland
18.0
18.2
18.5
18.6
18.9
France
2,873
2,849
2,903
2,926
2,925
Korea
15.2
16.0
16.3
16.9
18.8
Germany
2,849
2,905
3,078
3,136
2,863
Switzerland
14.4
15.6
17.3
17.7
17.6
Canada
2,046
2,052
2,160
2,140
2,097
Slovenia
13.5
13.8
14.9
17.0
16.1
Australia
1,953
1,969
1,914
1,971
2,013
UK
14.3
14.3
14.7
15.6
15.9
Russia
1,787
1,748
1,809
2,022
1,920
Sweden
12.7
12.8
13.7
15.4
15.1
Brazil
1,700
1,776
1,687
1,829
1,774
France
14.2
14.9
14.6
15.0
14.8
Italy
1,788
1,801
1,914
1,911
1,723
Qatar
13.6
14.5
13.9
15.0
14.6
Saudi Arabia
1,214
1,367
1,453
1,578
1,443
Singapore
12.4
12.6
12.7
13.2
13.2
Indonesia
1,304
1,311
1,558
1,517
1,437
New Zealand
12.9
12.7
12.5
13.0
12.9
India
1,222
1,244
1,251
1,302
1,385
Hong Kong
12.3
12.3
12.2
12.5
12.6
Argentina
1,571
1,604
1,619
1,594
1,289
Netherlands
11.6
12.0
12.6
12.9
12.5
Spain
1,300
1,298
1,348
1,326
1,273
Kuwait
11.3
11.8
11.5
13.1
12.4
Mexico
813
817
800
863
862
Bahrain
12.1
12.6
9.5
14.7
12.2
Taiwan
670
703
752
769
810
Finland
9.4
9.6
10.9
11.3
11.7
Malaysia
730
757
728
761
736
SOURCE: OVUM
SOURCE: OVUM
TABLE 3
TOP 20 COUNTRIES BY NON-SMS DATA ARPU ($), 1Q14
COUNTRY
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Japan
26.8
25.2
25.4
25.2
24.5
Norway
15.8
15.6
15.8
17.1
18.3
Canada
16.8
17.0
18.0
18.1
17.8
USA
15.3
15.6
16.0
16.4
17.7
Hong Kong
16.3
16.3
16.6
16.6
16.8
Korea
10.8
11.4
11.6
12.1
13.5
Australia
13.2
13.5
13.1
13.6
13.3
8.5
9.6
11.1
11.8
12.4
10.3
11.5
11.3
12.2
11.8
8.5
9.1
9.0
10.3
10.0
Austria
7.7
8.5
9.2
10.9
9.9
Ireland
9.0
9.3
9.9
9.7
9.9
Singapore
7.5
8.2
8.6
9.5
9.7
France
8.7
9.4
9.4
9.8
9.6
Bahrain
8.5
9.1
7.0
10.8
9.2
7.9
Switzerland
Qatar
Kuwait
UAE
6.8
7.4
7.8
8.0
Saudi Arabia
6.2
7.6
8.3
8.8
7.7
Taiwan
6.0
6.3
6.9
7.2
7.5
Spain
6.8
7.3
7.2
7.5
7.3
Israel
5.8
6.8
7.3
7.4
7.1
SOURCE: OVUM
OVUM.COM
85
TABLE 5
TOP 20 OPERATORS BY DATA ARPU ($), 1Q14
OPERATOR
COUNTRY
KDDI
Japan
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
32.7
31.4
32.1
32.3
32.1
Canada
26.6
26.7
27.9
27.6
26.7
Japan
28.6
26.7
27.2
27.0
26.2
Telus Mobility
Telenor Mobil
Canada
26.1
25.8
26.7
26.9
25.5
Norway
24.2
23.3
22.9
22.9
25.4
NTT DoCoMo
Japan
29.3
27.1
27.0
26.4
25.2
Hutchison 3G Ireland
Ireland
24.0
23.8
24.1
24.8
25.1
Netcom Norway
Norway
21.4
20.3
23.8
23.2
24.2
Verizon Wireless
USA
22.0
22.5
23.2
23.4
24.0
Canada
22.1
22.2
23.5
23.5
23.5
USA
22.0
22.3
22.7
23.2
22.9
Orange Switzerland
Switzerland
20.0
22.2
26.2
26.5
22.5
HI3G
Sweden
20.7
18.2
21.4
21.5
22.0
Optus
Australia
22.3
24.1
23.4
24.4
22.0
SK Telecom
Korea
16.3
17.3
17.5
18.1
21.1
MTS Mobility
Canada
21.5
19.8
20.1
20.3
21.1
20.8
USA
18.8
19.5
19.6
20.8
SmarTone
Hong Kong
20.4
20.4
20.5
20.5
20.5
Vodafone Australia
Australia
22.5
21.4
19.8
20.1
20.4
Telstra
Australia
21.8
20.9
20.0
20.2
20.3
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
SOURCE: OVUM
TABLE 6
TOP 20 OPERATORS BY DATA REVENUES ($M), 1Q14
OPERATOR
COUNTRY
China Mobile
China
7,298
8,756
8,911
9,417
8,989
Verizon Wireless
USA
7,645
7,924
8,250
8,466
8,724
USA
7,021
7,198
7,390
7,637
7,653
NTT DoCoMo
Japan
5,389
5,001
4,991
4,909
4,740
KDDI
Japan
3,656
3,585
3,730
3,811
3,860
China Unicom
China
2,384
2,672
2,838
2,906
3,037
USA
2,663
2,796
2,813
2,856
2,975
Softbank Mobile
Japan
2,733
2,631
2,745
2,787
2,674
China Telecom
China
1,970
2,135
2,302
2,345
2,398
T-Mobile US
USA
1,522
1,902
2,158
2,223
2,348
SK Telecom
Korea
1,316
1,404
1,430
1,481
1,622
EE
UK
1,129
1,191
1,243
1,312
1,340
Orange France
France
1,205
1,211
1,212
1,213
1,214
T-Mobile Germany
Germany
946
983
1,081
1,145
1,093
O2 (UK)
UK
962
948
954
987
1,024
Telstra
Australia
954
935
920
947
976
Vodafone uk
UK
833
804
840
877
895
Kt corp
Korea
874
Vodafone d2
Germany
Vivo
Brazil
SOURCE: OVUM
86
OVUM.COM
707
732
735
768
1,007
1,025
1,055
1,021
851
734
815
769
818
798
TABLE 7
TOP 20 SERVICE PROVIDERS BY PROPORTIONATE SUBSCRIPTIONS, 2Q14
OPERATOR
PROPORTIONATE SUBSCRIPTIONS
TOTAL SUBSCRIPTIONS
615,417,233
820,155,632
China Mobile CC
Vodafone
396,448,363
745,060,110
China Unicom
294,986,000
294,986,000
283,359,174
320,538,908
America Movil
Bharti Airtel
275,993,809
293,536,311
Telefonica SA
248,591,430
680,038,890
Telenor
204,802,754
402,670,309
China Telecom
180,439,300
180,439,300
Singapore Telecom
180,090,785
531,497,290
VimpelCom
169,798,035
218,104,000
MTN
166,221,860
214,294,833
Orange
153,726,835
242,453,559
Deutsche Telekom
144,217,240
178,604,032
AT&T Inc
141,612,475
435,962,441
Verizon
122,837,000
122,837,000
Axiata
118,689,857
256,292,969
111,110,978
127,050,339
Telecom Italia
MTS
106,952,441
110,197,001
92,121,538
127,952,000
92,088,785
240,026,321
Global Telecom
NTT DoCoMo
Proportionate subscriptions are calculated based on a companys equity ownership stakes in other
telecoms businesses.
TABLE 8
TOP 20 SERVICE PROVIDERS BY PROPORTIONATE SUBSCRIPTIONS BY REGION, 2Q14
OPERATOR
AFRICA
AMERICAS
ASIA PACIFIC
EUROPE: EASTERN
EUROPE: WESTERN
MIDDLE EAST
USA/CANADA
China Mobile CC
615,417,233
Vodafone
71,981,102
183,965,235
15,649,675
124,541,608
310,743
China Unicom
294,986,000
America Movil
239,965,602
6,467,923
13,207,568
23,718,082
199,159,326
78,589
162,828,335
14,778,799
4,627,108
66,357,189
Bharti Airtel
76,755,894
Telefonica SA
Telenor
4,409,589
128,660,902
54,497,200
17,130,508
104,555
China Telecom
180,439,300
Singapore Telecom
24,863,010
155,202,321
25,455
VimpelCom
10,272,415
35,236,940
101,658,680
21,889,000
741,000
MTN
130,142,677
336,000
35,743,183
Orange
68,618,911
847,721
88,274
23,224,576
58,126,526
2,820,828
Deutsche Telekom
67,416
476,207
28,329,178
64,799,439
50,545,000
AT&T Inc
21,336,686
536,838
1,136,496
118,602,456
VERIZON
122,837,000
Axiata
118,675,157
14,700
Telecom Italia
80,450,562
30,660,416
MTS
106,952,441
Global Telecom
21,209,888
70,430,000
481,650
NTT DoCoMo
92,088,785
Proportionate subscriptions are calculated based on a companys equity ownership stakes in other telecoms businesses.
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