It seems near incredible that BT began advertising ‘superfast’ mobile internet services as far back as 1998, to little acclaim at the time. Today, most decisions by MNOs, be it over pricing models or improvements in network performance, are made against a backdrop of colossal demand for mobile data services.
At the forefront of this revolution have been western Europe and North America. In these markets, MNO strategies for monetising mobile data have historically amounted to little more than acting as a toll gate for the mobile internet, but that game is now changing with a capacity crunch that’s changing all the rules.
Companies such as Google and Apple have been successful in disrupting previous models for the monetising of mobile data, and the subsequent surge in demand is making everyone rethink their investment plans.
Across Europe, MNOs are largely dispensing with ‘unlimited mobile internet’ bundles, due either to concerns about processing subsequent demand or due to regulatory requirement. These measures, however, are clearly short-term and what’s clear is that smarter thinking is required to remain relevant in the market. What’s clearer still is that the dynamic between carriers and mobile operators is having to change fast to keep pace with new market conditions.
Olympic capacity crunch
The UK is a particularly acute example of a market trying to keep pace with mobile data demand. The nation will be the host of the 2012 Olympics, which is expected to trigger a monumental spike in demand for mobile data services as almost one million expected tourists are due to swell the ranks of host city London.
All of this will occur before the country’s communications regulator Ofcom gets anywhere near auctioning the country’s available 4G spectrum in what is fast becoming a farce of delay and confusion. UK MNOs are being forced to find interim measures in the absence of the necessary cellular capacity, among which is establishing new types of carrier partnership. Yet first it’s important to take a closer look at the cross pollination of network technologies occurring as MNOs look to boost capacity on their own.
Telefonica-owned O2, for instance, is deploying its own public Wifi network in partnership with incumbent telecoms company BT and pan-European public Wifi provider The Cloud. Together, all three aim to establish over 900 premium public Wifi hotspots by the close of 2012. The roll-out is set to extend into 2013, with the service being offered as part of a service bundle for O2’s 22 million mobile subscribers.
Tim Sefton, O2’s new business director, describes the rationale for the roll-out as follows: “Only 20% of people who have access to free public Wifi on O2 tariffs actively use it despite the majority of devices being Wifi enabled. We know that Wifi as a technology has great potential and can be a very fast service.”
Sefton also describes how O2’s Wifi roll-out is indicative of Telefonica’s strategy of offering mobile data services across a number of technology standards, including cellular and IP-based technologies such as Wifi.
Included in this strategy, is the MNO’s VoIP technology experiment which O2 aims to implement in order to ease congestion on its existing 2G and 3G network infrastructure. The scheme, launched in beta in the last quarter of 2011, called O2 Connect lets smartphone users to use voice and text services over Wifi networks from their normal mobile number to any UK mobile or landline number.
The beta service is scheduled to run into 2012 and will also run concurrently with the MNO’s first publicly discussed 4G trial in the UK capital.
O2’s 4G trial, which launched in November 2011 and is scheduled to run throughout the first half of 2012, is aimed at identifying some of the initial challenges of operating a 4G network.
At the launch of the trial, O2’s CEO Ronan Dunne described how: “The forthcoming [4G] spectrum auction is a watershed moment for the UK mobile industry, which will see the release of the airwaves capable of powering a whole range of exciting next-generation mobile services.”
The successful implementation of such a strategy will ultimately rely on the smooth hand-off between technologies, such as 3G to Wifi networks, in order to provide a seamless service integration.
Ovum’s David James, an analyst specialising in wholesale telecoms, identifies the pairing with non-traditional data carriers, such as Wifi providers, as a progressive solution towards easing congestion. “There is potential for MNOs to work with non-carrier Wifi service providers for offload solutions, and with cable companies for backhaul. In most countries these are nascent markets but the potential is there,” he says.
He also identifies how MNOs pairing with Wifi providers, to prevent capacity overload, does not pose a significant threat to wholesale mobile carriers. “This could in fact increase the number of customers for carriers. Cable company backhaul on the other hand is a competitive threat to carriers, although again, in most countries this is only just beginning to emerge as a serious business option for cable companies,” he says. “This is an area we will be researching further in the New Year.”
Meanwhile, O2 UK’s largest rival MNO Everything Everywhere, a 50:50 joint venture between France Telecom and Deutsche Telekom, has highlighted how shoring-up its capacity is its core priority.
Everything Everywhere CEO Olaf Swantee believes investing in network performance is key to driving down capex, reducing customer churn and generating new revenues from the nascent industries such as mobile advertising and health monitoring services. Sectors that most MNOs invest in as the traditional verticals of voice, messaging and access become commoditised.
Everything Everywhere, which operates under both the Orange and T-Mobile brands in the UK, has announced its intention to invest up to £1.5 billion in improving its network performance over a three-year period in December last 2011.
The investment will include preparation for the roll-out of 4G networks and improving existing levels of 3G coverage, which also involves the implementation of Everything Everywhere’s cross-network signal sharing on both the Orange and T-Mobile networks. This network integration is seen as a key benefit in the ongoing merger of the two companies, which formally began in the second half of 2010, which prompts users’ devices to automatically select the stronger signal from either network.
Swantee believes that such capabilities will be key to retaining customers in Europe’s most competitive telco market at a time when the economy is at a low ebb – periods when customer churn increasingly becomes an issue for MNOs. However, he also cites the investment and preparation for 4G technologies as a potential jump-start for the UK’s digital economy – with the MNO firmly at the heart of the planned revival.
Partnership between fixed-line and mobile players
Swantee cites, Everything Everywhere’s first 4G trial, conducted in tandem with BT Wholesale in the rural district of Cornwall, as an example of how rolling out 4G services can both acquire new customers and improve economies of scale. The collaborative trial, kicked-off in October last year and is scheduled to run into 2012, was the first of its kind to feature both a mobile and fixed broadband network operators in the UK.
The trial, which uses the 2 x 10MHz of test 800MHz spectrum, sees the two companies share their fixed telecommunications and mobile technology to provide high speed wireless broadband to 200 participants.
Speaking three months into the experiment, Swantee reported the trial had so-far generated satisfaction rates of over 90%. “It’s hard to think but in this day and age but even in markets like the UK there are still 200,000 to 300,000 ‘not spots’ where there is no connectivity at all,” he says. “4G can help fix that.”
Swantee also describes how the collaboration between Everything Everywhere and BT Wholesale is a prime example of a strategy of how telcos can achieve the economies of scale necessary to warrant investing in areas of scarce population density.
Ovum’s James assesses the situation as follows: “The BT Wholesale and Everything Everywhere trial of a combined LTE and fibre access network is an interesting model for rural coverage. It also extends the wholesale relationship into a two way one with BT Wholesale buying LTE access from Everything Everywhere, as well as Everything Everywhere using BT’s fibre network for backhaul.”
Increasing importance of international wholesale
James also describes the pairing as a possible template for success that MNOs elsewhere may emulate in order to adapt to the growing demand for mobile data services – on both a national and international level.
When posed with the question: ‘Are MNOs relying on wholesale carriers as much as they used to, or maybe more than they used to?’ James ultimately agrees. “Not just because there’s more traffic but because wholesale carriers are doing more for them [MNOs]. Certainly on an international level, many are outsourcing their voice traffic to wholesalers and as it grows, data is likely to follow,” he says.
“Running these operations requires cost efficiently on a very large scale and that it not available to many MNOs, particularly in emerging markets.” James also describes how the increasing emergence of mobile data services across the globe requires the interoperability of traffic. This, in his opinion, will further bolster the importance of the relationship between the wholesale carrier and mobile operator.
Again, this is being driven by external pressure from brands whose legacy lies outside of the traditional telco industry: the OTT players. “With increased internet usage has come the ability of non-telcos to provide communication services using the internet for connectivity; a good example being the Microsoft-owned VoIP provider Skype,” he says.
“If MNOs are to compete with these OTT services, they have to be able to offer services, from voice onwards, that work globally seamlessly and at a price that can compete with internet services.” With the development of [mobile data] hubs, the responsibility for interoperability – such as set up, compliance and testing, etc – moves from the operator to the wholesale provider. In many instances the international wholesaler is becoming more than just a pipe,” adds James.
As the demand for international mobile data traffic increases, MNOs are increasingly turning to hubbing solutions, which means they don’t have to manage multiple interconnectivity relationships in order to route international data traffic. This, according to James, will play an increasingly important role in the years ahead.
“MNOs need to be able launch new services quickly and easily, but the traditional bi-lateral model for mobile interconnection is both time-consuming and expensive,” he says. “Hubs allow MNOs to connect once to a hub to reach all other players connected to that hub. Hubs already exist for voice, SMS and MMS. The IPX (IP eXchange) takes this further to potentially provide a hub for all IP services.”
Facilitating foreign expansion
Similarly, AT&T’s enterprise sector has indicated its international ambitions by penning a memorandum of understanding with América Móvil. The agreement promises to open up the entire continent to the global enterprise market.
The alliance will see the two companies use each other’s network infrastructure to deliver enhanced communications services to the enterprise sector throughout Latin America according to the pair.
Roman Pacewicz, AT&T business solutions SVP of marketing and global strategy, says the agreement, signed in the final quarter of 2011, is indicative of AT&T’s strategy of establishing key alliances in key regions, particularly those where economic development is predicted to continue rapidly in the near future. “This involves the harmonisation of infrastructure, services, systems and processes generating unprecedented value for our business customers,” he says. In a similar vein, European telcos are also aiming to leverage international relationships with carriers from emerging markets to facilitate their corporate customers’ appetite for international expansion.
Telefónica, which counts 300 million customers globally, recently inked an agreement with China Unicom, via its wholesale entity to share the use of their points of presence on their international networks.
The pact lets both carrier’s offer fixed voice and data services to their customers across each other’s international network hubs in a more cost-efficient manner signalling a key focus for wholesale carriers in the immediate future according to Juan Carlos Lopez-Vives, CEO of global solutions at Telefónica. “Together we can offer unique and differentiated solutions to multinational corporations in the most relevant markets in the world, including key growing markets for our customers, such as China and Brazil,” he says.
So with mobile data services clearly fuelling the trend towards globalisation, operators are apparently more reliant than ever before on relationships with wholesale carriers, both internationally and domestically, both in 2012 and the years ahead.
OTT players urging more capacity demand
Online retail giant eBay upwardly-revised its predictions for mobile revenues in 2011 from $4 to $5 billion given the massive uptake of its services on smartphones.
The trend prompted eBay to commission research unveiling widespread disappointment with UK internet speeds, which went as far as to submit what it termed as a ‘Mobile Manifesto’ to Ofcom urging to speed-up the roll-out of 4G and prioritise improving mobile internet coverage on transport routes such as railways and roads.
The manifesto also included demands action to cap data charges for consumers when they travel abroad. This demonstrates just how aggressively mobile operators are being pursued to improve their mobile data services.
