Nokia Siemens Networks

The industry landscape in 2013

Key trends and their impact on

operators

Contents
2 It’s no longer about managing the
data Tsunami
3 Technology trends: Operators will
control data growth
4 End customer trends: Added
boost for mobile broadband
5 Operator trends: Broadband
is stopping operator revenue
erosion
6 Conclusion
8 Abbreviations
What will 2013 bring?
The major trends
What are the key trends
affecting the business of being
an operator in 2013, and what
can operators do to counter
the current squeeze in
profitability? Nokia Siemens
Networks has conducted an
extended analysis of the
technology and industry
trends that will impact mobile
operators in 2013 and
beyond. The results reveal
how trends in technology,
innovation and regulation
could affect operators and
their customers.
1.0 It’s no longer about
managing the data
Tsunami
Changing user behavior and
over-the-top (OTT)
applications are driving traffic
growth in networks. While
operators can currently
manage the traffic boom,
profitability is a growing
concern because business
measures such as EBITDA
(earnings before interest,
taxes, depreciation, and
amortization) and ROCE
Nokia Siemens Networks predicts:
Video will account for 60% of all mobile
traffic in 2013
(Return on Capital employed)
have been falling globally for
about two years.
Despite these symptoms of the
industry’s declining health,
operators are well placed to
administer the right medicine
and make money from mobile
broadband to compensate for
falling voice revenues. The
main routes to improved
profitability lie in offering more
sustainable differentiated
pricing models, partnering with
OTTs, and significantly
improving network efficiency. In
effect, we can see that instead
of operators being drowned by
the so-called “Data Tsunami”,
they will be able to control it.
Making predictions is always
tricky, but Nokia Siemens
Networks has used its
extensive market research and
technology insights to pick out
the key trends in
communications that will impact
the mobile communications
business in 2013 and beyond.
2.0 Technology trends:
Operators will control
data growth
2.1 The role and
challenges of small cells
While there is still ample scope
to increase the capacity of the
macrocellular network, small
cell deployments will play a
complementary role by
delivering extra capacity in
locations with extreme demand.
The key is to combine Wi-Fi
and cellular technologies in
heterogeneous networks
(HetNets). Operators face the
challenge of finding and
operating a high number of new
low-cost cell sites to cater for
the required deployment of
micro-, pico- and femto access
points that are able to support
cells with a radius between 10
and 100 meters. In addition
they will need to consider
backhaul design, spectrum
issues and interference
management.
Small cells also present
physical challenges when it
comes to deployment. They’ll
need to be installed down to
street level to achieve sufficient
coverage and Quality of
Service (QoS), and these near-
ubiquitous new items of street
furniture will need to be robust,
secure and unobtrusive.
Nokia Siemens Networks predicts: During 2013, the number of
mobile subscriptions will exceed 7 billion
Backhaul solutions will need to
be similarly flexible, ranging
from copper and fiber to Wi-Fi.
Artificial intelligence (AI) will
feature increasingly in
communication networks,
preventing operators from
being overwhelmed by
complexity and helping them
to manage the customer
experience more closely. AI is
already in the mainstream for
many of us, with applications
such as spam detection, Siri
and Google. The time is right
for cognitive networks to
provide end-to-end
optimization and customer
experience management.
2.2 The rise of the cloud
Taking a lesson from the IT
world, operators are starting to
adopt cloud models to help
deliver the cost reductions,
flexibility and technological
agility that they need. Fans of
the cloud approach point to
potential CAPEX savings of
50-80% and OPEX savings of
50-60%, thanks to increasing
asset utilization, automation,
standardization and
economies of scale. Service
provisioning can be
compressed from weeks into
hours, and the use of
standardized components will
make it virtually risk-free to
introduce new services and
tools.
2.3 Gaining more precise
control over content
delivery
Operators’ top and bottom lines
will also benefit from new ways
to optimize content delivery.
Policy-controlled content
delivery and optimization will
become an increasingly
important differentiator.
Content Delivery Networks
(CDN) are also gaining traction
as a way for mobile operators to
increase their relevance in the
content/media value chain. A
radio access network that’s
content aware and that provides
QoS differentiation can
significantly improve the user
experience. According to
market analysts the number of
telecoms operators with CDNs
is growing rapidly. That trend
looks set to continue through
2013.
2.4 The changing scene
in spectrum regulation
A rising technical challenge is
spectrum fragmentation, as
regulators increasingly allocate
spectrum bands to deliver 4G
services across a wide range of
Nokia Siemens Networks predicts: By the end of 2013, one in
ten mobile devices will be a machine
frequencies. The quest for
bandwidth is harming the
potential for economies of scale
for 4G devices and global data
roaming. Operators will need to
respond with technologies such
as carrier aggregation,
multiband radio, shared access
and spectrum refarming.
In addition, governments see
broadband as a national growth
engine and are dishing out 4G
licenses with strict
Figure 1
requirements on network
operators to provide coverage
in less-profitable, rural areas.
This is also a spectrum issue,
since most of the current
allocation is above 1 GHz,
which is more suitable for
building capacity than
coverage. The release of 700
MHz spectrum is likely to
improve the situation after
2015.
Changing technology may
provide some of the answers to
make more profit from mobile
broadband growth, but it’s
bringing potentially major
disruptions too. For instance,
what operators consider to be
distinct communications
"services" and OTTs consider
as distinct “apps” might rapidly
become simply a function at the
web browser. Messaging is
already a long way down that
curve and voice and video look
set to follow, with apps like
Skype on Facebook and
Hangouts on Google+
WebRTC. This will shift power
from telcos into the IT and
application domain, and away
from devices into the cloud.
3.0 End customer
trends:
Added boost for mobile
broadband
A plethora of apps and video
services are pushing up traffic
volumes, and that looks set to
accelerate with changing
consumer trends. Consumers
are extending the range of
apps and services they use for
finding, sharing, trading,
storing, synchronizing and
accessing the content they
need. App downloads are
nearly doubling every year and
smartphone penetration is
accelerating. Average data
consumption per user per
month in mature markets is
likely to reach 1GB. This is up
from 500MB in 2012.
3.1 Consumers are
becoming more familiar
with data plans
Consumers are travelling far
along the learning curve as
they deliberately choose to
use a wider range of services,
applications and devices. They
are increasingly able to pick the
most appropriate method of
interaction for their desired
communication, such as
Whatsapp, operator SMS,
Facetime, Hangouts, Skype,
operator voice and so on.
Consumers carefully track their
usage against their data plan
and make decisions that are
increasingly based on the value
and cost of the plan. With clever
use of Wi-Fi, consumers are
already able to avoid exceeding
their data allowances.
Operators can maintain
profitability in the face of traffic
growth because they can
actively make use of the price
elasticity of users to balance
capacity costs and end user
willingness to pay.
3.2 The long predicted
Internet of things is
getting closer
People will increasingly use
their portable devices to access
services at home, as well as out
and about as, for instance, the
number of multi-tablet
households is taking off and
machine-to-machine (M2M)
technology is connecting a
wider variety of devices, such
as gaming consoles and TVs.
Nokia Siemens Networks predicts: The number of global
application downloads will nearly double: from about 45 billion
M2M connectivity is already
in 2012 to 80 billion inimmediately
2013 enhance real life,
growing by 20 to 25% a year as
for example a buying decision
networks progressively
transform into the “Internet of
Things”. In 2013, Nokia
Siemens Networks predicts that
one in ten devices will be a
machine, and there will be
more than a billion machines
online by 2016.
One big question is: how can
operators cost effectively cater
for the billions of new machine
users that will be joining the
networks? For some operators
with a large customer base in
enterprise and IT services,
M2M presents a potential new
business on top of traditional
connectivity. M2M services and
platforms are already being
developed in order to establish
a new type of M2M ecosystem.
3.3 Consumers are
becoming more familiar
with data plans
It’s not just consumers and
devices in developed markets
that are driving traffic growth.
By 2015, 60% of people in
developing countries will have
access to the Internet and 40%
of households will be
connected, according to the
ITU.
Smartphone apps are
increasingly seen as a tool to
their on-site IT. Cheaper
bandwidth will accelerate the
in a physical shop. Augmented cloud computing trend.
reality apps and services that However, enterprise concerns
bridge offline and online about service security and
worlds will form a new quality remain and will continue
category generating extra to be major differentiators in a
demand for high network very competitive market.
responsiveness as the
necessary information needs
to be available immediately to
be valuable for real life
4.0 Operator trends:
augmentation. Broadband is stopping
operator revenue erosion
Enterprises too will make
increasing use of mobility and
expect employees to
accommodate work-related 4.1 Operators continue to
apps on their own devices. be attacked on their
The now-familiar “bring your
own device” phenomenon will
home ground
expand to include other “bring
Revenues from the traditional
your own” categories –
telco cash cows of voice and
spawning bring your own
SMS are in decline and there
Operating System, bring your
are worrying signs that the
own apps, bring your own situation could deteriorate even
storage, and bring your own
further. The European
cloud. Half of IT usage
Commission has announced
decisions will be driven by
further cuts in Mobile
users and line-of-business
Termination Rates (MTR) (as
management outside the
well as local data tariffs), and
traditional corporate IT
Skype has been lobbying for
department. The outcome of
mobile operators to remove
this trend is for IT departments
blocks to its VoIP over mobile
to no longer provision desktop application.
IT setups, but to focus instead
on centralized policies, The decline in traditional
security standards and ways to services could accelerate
manage BYO proliferation. because of aggressive OTTs
and operators offering no-frills
Enterprises will also continue
services. As we have seen in
shifting their IT resources into
the recent past, for example in
the cloud and scaling back
Korea, France and the
Netherlands, market conditions
can entirely change within one
year.
On the other hand, mobile
broadband will compensate for
most of the decrease.
Operators will have to act
smart, using co-operation with
OTT providers and establishing
their own offerings in relatively
untapped sectors such as
vertical enterprise applications
to keep a firm foothold in data
services.
Revenue growth is also slowing
in mature markets thanks to
saturating markets and price
competition. This is putting
increasing pressure on
operator investments, but
substantial investment is
needed to introduce
technologies such as LTE,
which will ultimately help to
achieve the necessary cost
efficiency in networks and
provide the required customer
experience to survive against
the competition.
Nokia Siemens Networks predicts: The number of cooperation
agreements between operators, OTTs and other industries will
increase significantly. Main areas will be content delivery,
payment and service bundling
4.2 Operators must
explore new ways of
doing business
Clever, tiered pricing models
and bundles containing OTT
services are major tools to
help operators combat the
erosion in data revenues. This
will only become more
important going forward.
Ultimately, however, there is
an increasing danger that the
business of being a network
operator is changing from a
retail model to a utility type of
business, with limited room for
positive differentiation.
Handset vendors and OTT
providers are gaining more
traction with consumers and it
will be harder than ever for
operators to establish strong
customer relationships in
future as consumers are
focused on the latest device
and the coolest app. In most
markets, customer loyalty is in
decline. According to a trend
analysis based on the global
Nokia Siemens Networks
Acquisition and Retention
survey, which is based on
representative samples in
different market types, the
number of loyal customers is in
decline. Consumers are
increasingly selecting operator
according to price and handset
offers.
Also, the variety of services is
more important for consumers,
however that variety is coming
from the OTT ecosystem, rather
than from the operators
themselves.
Making the right investments in
the Customer Experience
Management (CEM) area, such
as focusing on perceivable
network quality and pursuing
new ways to interact with
customers, for example via
social networks, are keys.
It’s also clear that the number of
cooperation agreements
between operators, OTTs and
other industries will increase
significantly, especially in the
areas of content delivery,
payment and service bundling.
There’s no doubt that these
changes are putting network
operators under pressure.
Financial performance
indicators are in decline across
the board. Over the last two
years EBITDA margins have
been eroding by 1 percentage
point per year globally.
However, the right technologies
and business strategies will
mitigate these developments
and help establish successful
businesses as networks reach
4G and beyond. New levels of
spectral efficiency, network
automation and cost structure
re-design are needed to
maintain profitability.
5.0 Conclusion
It is clear that mobile operators
are taking the right action and
have the available technologies
and tools to be able to avoid a
meltdown of networks caused
by the explosive growth in
traffic generated by the boom in
mobile broadband. They are
evidently managing the data
Tsunami.
However, that does not mean a
smooth ride for operators as
they strive to maintain growth.
The fast pace of change that
has characterized
communications in the last two
decades shows no signs of
slowing. In fact, change is
heading towards the sector
from many different directions
at an accelerating pace.
To leverage the trends in the
industry, operators need to
pursue new ways of exploiting
their three sources of profit –
network capabilities, customer
relationships, business models:
Network capabilities:
Operators can differentiate
their offering by more
sustainable pricing plans,
differentiate their delivery in a
way that is perceived favorably
by the end customer and drive
necessary capacity extensions
with the latest technology
developments to keep the
bottom line low.
Customer relationships:
Operators have the
opportunity to take more
immediate action on customer
insights and find clear ways to
add value to their customers’
digital lives instead of just
competing against OTTs or
copying them.
Business models: Operators
can innovate in this area by
introducing models that are
based more on revenues from
business partners and not
solely on end user fees. There
are further innovative use
cases for mobile broadband,
especially in the enterprise
and vertical market space.
Despite the difficulties and
pressures they face, mobile
operators are well placed to
take advantage of the rising
technological, market and
regulatory trends to establish
new roles in the mobile
broadband value chain.
Abbreviations
BYO Bring Your Own

CAPEX Capital Expenditure

CDN Content Delivery Network

EBITDA Earnings Before Interest,Taxes, Depreciation and Amortization

HetNet Heterogeneous Networks

LTE Long Term Evolution

MHz Mega Hertz

MTR Mobile Termination Rate

OPEX Operational Expenditure

QoS Quality of Service

RAN Radio Access Network

RoCe Return On Capital Employed

VoIP Voice over IP

WiFi Wireless Fidelity

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