2016 Trends in Mobile Telecom

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1 PREVIEW 2016 Trends in Mobile Telecom OCT 2015 Rich Karpinski, Principal Analyst Jennifer Clark, Vice President Sheryl Kingstone, Director Declan Lonergan, Vice President Boris Metodiev, Research Manager Brian Partridge, Vice President Ken Rehbehn, Principal Analyst Wally Swain, Senior Vice President The global mobile operator market is facing a time of great change, opportunity and risk, which will only intensify in the year ahead. Mergers and acquisitions are shaking up mature markets while emerging players struggle to keep up with mobile broadband demand. The network itself is changing as well, with concepts like virtualization and services such as voice over LTE emerging from the lab with great promise but mixed results Research, LLC

2 ABOUT 451 RESEARCH 451 Research is a preeminent information technology research and advisory company. With a core focus on technology innovation and market disruption, we provide essential insight for leaders of the digital economy. More than 100 analysts and consultants deliver that insight via syndicated research, advisory services and live events to over 1,000 client organizations in North America, Europe and around the world. Founded in 2000 and headquartered in New York, 451 Research is a division of The 451 Group Research, LLC and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication, in whole or in part, in any form without prior written permission is forbidden. The terms of use regarding distribution, both internally and externally, shall be governed by the terms laid out in your Service Agreement with 451 Research and/or its Affiliates. The information contained herein has been obtained from sources believed to be reliable. 451 Research disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although 451 Research may discuss legal issues related to the information technology business, 451 Research does not provide legal advice or services and their research should not be construed or used as such. 451 Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. NEW YORK SAN FRANCISCO LONDON BOSTON 20 West 37th Street 3rd Floor New York, NY P F Geary Street 9th Floor San Francisco, CA P F Gower Street London, UK WC1E 6HH P +44 (0) F +44 (0) Liberty Square, 5th Floor Boston, MA P F ABOUT THE AUTHOR RICH KARPINSKI PRINCIPAL ANALYST Principal Analyst Rich Karpinski covers the areas of mobile marketing and commerce and North American mobile operators for the 451 Research Mobility team, which was established in July 2014 with the integration of Yankee Group. In these roles, he focuses heavily on mobile operator business models, service delivery strategies and the overall dynamics of the mobile ecosystem. On the mobile commerce front, his areas of focus include big data analytics, proximity marketing/commerce and mobile retailer tools and strategies. II

3 Key Findings Consolidation as always remains an important feature of the mobile services market. In Europe, M&A will slow as regulators assess a wave of proposed deals and evaluate the larger competitive impact. In North America, activity is moving from large players acquiring smallish mobile assets to acquiring each other, with cable operators and foreign entrants jumping in to complicate the mobile M&A picture. Operators are counting on playing a key role in the Internet of Things (IoT) ecosystem, but the emergence of low-power wide area network (LPWAN) alternatives to operator networks threatens that opportunity today and in the 5G future. Urgent requirements to move to more sophisticated service delivery and data monetization strategies will drive operator big data initiatives, with policy-driven analytics tools enabling mobile network operators (MNOs) to be more responsive to customer needs and market opportunities. LTE networks have placed data services at the center of mobile operator strategy. But the evolution of voice services onto LTE won t be as smooth as operators imagine. VoLTE technical concerns will challenge MNO engineering teams, put operator reputation at risk and drive up customer support costs. Telco virtualization driven by software-defined network (SDN) and network functions virtualization (NFV) is real; carriers that don t already have significant production deployments underway risk falling behind. Competition in mobile devices is becoming less about building the best hardware and more about finding the best business model. Engaging directly with customers via device financing/leasing programs and delivering value-added services are among the weapons wielded by large global device makers. Mobile bandwidth has been growing quickly in emerging markets, but weak currencies and economic growth in many regions will result in more expensive smartphone prices, holding back mobile broadband growth in 2016 in those markets. III

4 Executive Summary INTRODUCTION The more things change, the more they remain the same. Just a few years ago, mobile operators faced a network and market evolution that promised to dramatically upset the status quo. The move to 4G required tough technology choices (remember WiMax?) and investment ahead of a clear business case. Service delivery was shifting from a focus on voice and messaging to a new world of data connectivity and as it turned out over-the-top (OTT) apps and services. The balance of power between network providers and device makers was shifting, with a new powerhouse (Apple) emerging and old standbys (BlackBerry and Nokia) seeing their fortunes drastically reversed. Indeed, today after a period of relatively straightforward, heads-down work of getting today s 4G networks launched and properly monetized MNOs face a similarly challenging, risky, yet opportunity-rich path forward. It is no time for the timid. On the network side, deployment of what one might call 4.5G networks has come to the fore, with mobile operators leveraging LTE-Advanced technologies like carrier aggregation to boost network speeds and coverage. The move of the service that started it all voice onto those networks in the form of voice over LTE (VoLTE) services offers just as big a challenge. While supporting the next wave of high-speed mobile data services is crucial, just as important is enabling the billions of Internet of Things (IoT) devices expected to flood mobile networks, with new low-power network approaches threatening expected operator hegemony. There s just as much, if not more, change happening in the network core, with real-world software-defined network (SDN) and network functions virtualization (NFV) deployments signaling the dawn of the virtual telco an entity that will possess the operational flexibility to compete in tomorrow s cloud-centric ICT markets. Mobile operators face as many challenges on the business and services front. Mergers and acquisition activity is in full swing in many geographies, with the only slowing coming from governments and regulators hitting the pause button to more fully understand the competitive impact. MNOs are speeding to take advantage of new tools and approaches from better big data analytics to more real-time policy enforcement to enable new service delivery and business models. Device makers are facing similar challenges as competition moves from simply building better hardware to reinventing how they reach customers and deliver value. In this report, we assess the impact of these changes on the mobile operator landscape in the coming year, recommend best paths forward, and pick the likely winners and losers as the market undergoes yet another seismic shift. IV

5 2016 TRENDS IN MOBILE TELECOM 451 Research s 2016 Mobile Telecom Trends Source: 451 Research, 2015 Telco M&A Activity Will Slow in Europe North America Will See the Return of the Quad Play LTE-M Timing Gap and New LPWAN Upstarts Will Force the Hand of Operators Winners Telcos that have already merged or completed acquisitions; new-entrant MVNOs; European citizens Large integrated operators making big strategic bets; laserfocused mobile-only players Telecom operators that get in front of the LPWAN discussion Losers Telcos looking to complete deals in 2016; finance houses Any would-be major player that s left without a seat or clear reason to exist when the M&A song-and-dance ends Telecom operators that insist that LTE-M is the only way Telcos Will Increase Investment in Big Data Tools for Churn and Monetization Insight VoLTE Pain Will Peak The Virtual Telco Will Take Shape Mobile Handset Vendors Will Diversify Reeling Emerging Markets Economies Will Struggle To Maintain Growth in Mobile Broadband Network extraction and policy tool providers; big data management processing and analytic vendors Mobile operators with a solid LTE footprint Carriers and service providers that take action first; SDN/NFV startups and smaller carriers and MVNOs Large and powerful smartphone vendors The Shenzhen garage handset vendors; MVNOs Stand-alone DPI and probe vendors; data warehousing tool vendors Operators that fail to commit to universal LTE coverage Incumbent vendors focused on protecting existing product lines; carriers that further delay a move to SDN and NFV Smaller and online-only vendors Branded handset vendors; equipment manufacturers METHODOLOGY Reports such as this one represent a holistic perspective on key emerging markets in the enterprise IT space. These markets evolve quickly, though, so 451 Research offers additional services that provide critical marketplace updates. These updated reports and perspectives are presented on a daily basis via the company s core intelligence service, 451 Research Market Insight. Forward-looking M&A analysis and perspectives on strategic acquisitions and the liquidity environment for technology companies are also updated regularly via Market Insight, which is backed by the industry-leading 451 Research M&A KnowledgeBase. Emerging technologies and markets are also covered in additional 451 Research channels, including Business Applications; Cloud and IT Services Markets; Data Platforms and Analytics; Datacenter Technology; Enterprise Mobility; European Services; Information Security; Mobile Telecom; Multi-Tenant Datacenters; Networking; Service Providers; Storage; and Systems and Software Infrastructure. Beyond that, 451 Research has a robust set of quantitative insights covered in products such as ChangeWave, Voice of the Enterprise, Market Monitor, the M&A KnowledgeBase and the Datacenter KnowledgeBase. All of these 451 Research services, which are accessible via the Web, provide critical and timely analysis specifically focused on the business of enterprise IT innovation. For more information about 451 Research, please go to: V

6 Table of Contents TRENDS 1 Trend 1: Telco M&A Activity Will Slow in Europe 1 Figure 1: European Mobile Activity Will Level Off RECOMMENDATIONS WINNERS LOSERS Trend 2: North America Will See the Return of the Quad Play 4 Figure 2: North American Mobile Service Revenue Will Continue Its Upward Trajectory RECOMMENDATIONS WINNERS LOSERS Trend 3: LTE-M Timing Gap and New LPWAN Upstarts Will Force the Hand of Operators 6 RECOMMENDATIONS WINNERS LOSERS Trend 4: Telcos Will Increase Investment in Big Data Tools for Churn and Monetization Insight 8 RECOMMENDATIONS WINNERS LOSERS Trend 5: VoLTE Pain Will Peak 9 RECOMMENDATIONS WINNERS LOSERS VI

7 2016 TRENDS IN MOBILE TELECOM Trend 6: The Virtual Telco Will Take Shape 10 RECOMMENDATIONS WINNERS LOSERS Trend 7: Mobile Handset Vendors Will Diversify 12 Figure 3: Xiaomi s Shipments Growth Is Flattening After an Amazing First Three Years RECOMMENDATIONS WINNERS LOSERS Trend 8: Reeling Emerging Markets Economies Will Struggle To Maintain Growth in Mobile Broadband 14 RECOMMENDATIONS WINNERS LOSERS THE LONG VIEW 15 FURTHER READING 16 INDEX OF COMPANIES 17 VII