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Quantifying the energy cost savings from 2G/3G network shutdowns

Posted on 18/10/2022 | 21/04/2023 by Matt Walker

With each passing day, the 2G and 3G layers of telcos’ mobile networks are looming as heavy loads on operating expenses (opex). That’s due to multiple issues but especially energy consumption and related costs. With the existence of a 4G layer in these networks and the coming, if not already deployed, energy-hungry 5G layer, such loads become even heavier. Even before 5G has become widespread, energy costs averaged to about 4% of telco opex in 2021, based on an MTN Consulting study.

Quantifying base station energy costs by generation

Many telcos publish data on their energy consumption, and sometimes provide breakdowns for different parts of the network. But there are no existing estimates on the specific impact of maintaining 2G/3G networks alongside 5G. This blog attempts to quantify the effect of these older 2/3G mobile networks on a typical telco’s energy bill.

To accomplish this, first, we need to have a closer look at overall electrical energy consumption for mobile telcos, and then break down this consumption into parts, identifying what portion of total energy relates to the base station and what parts of the base station consume the most energy.

One complication is that a pure “mobile telco” is rare: most telcos providing mobile services also provide many other services, and operate network assets well beyond the mobile RAN. Some telcos providing mobile services began their lives long ago as fixed operators. Some started as mobile but acquired or built fixed assets to support converged offerings. Some have provided both fixed and mobile services from the start. Some provide cloud or other services mainly aimed at enterprise markets. The energy consumption patterns differ across operator types. Figure 1 illustrates this, for a few large telco groups.

Figure 1: Mobile network as % of total network usage, select telcos

Source: public reports and MTN Consulting estimates

To remove this confusion, we will consider mobile telecom companies that still rely exclusively on providing mobile telecom services. For such operators, the mobile network accounts for about 90% of total company energy consumption and costs. There is some limited variation around this 90% figure, due to vendor choice, network topology, and traffic mix, but 90% is a reasonable estimate.

Taking KDDI as an example from Figure 1, this company provides a range of services that are not mobile related; MTN Consulting estimates that KDDI’s mobile network accounts for only about 60% of total company energy consumption. But for Zain, this ratio is 93% as this company is almost exclusively focused on mobile services.

After concluding that about 90% of a mobile-only network provider’s energy consumption is from the mobile network, we need to dive deeper inside the mobile network to find the network elements that contribute most directly to energy consumption.

The mobile network consists of different parts like core, transport, and base stations. As shown in Figure 2, the base stations, or the mobile radio access network (mobile RAN), account for about 57% of network energy consumption for a mobile operator. Expressed differently, the mobile RAN accounts for about 51.3% (i.e. 90% * 57%) of total company energy consumption for a mobile-only operator, such as Zain.

Figure 2: Base station’s contribution to mobile network energy consumption

Source: IEEE Communications Surveys and Tutorials

Now we need to examine the base station and have a closer look at the base station elements and their corresponding energy consumption. As shown in figure 3, the base station element that consumes the largest portion of energy is the power amplifier (PA), which consumes around 75% of total base station energy consumption as shown in figure 3.

Figure 3: Base station energy consumption distribution by network element

Source: Journal of Energy

As shown above, the power amplifier element is the biggest energy consumer in a mobile-only telco network. The power amplifier accounts for about 38% of total company energy consumption: 75% * 57% * 90%. So if a mobile network operator turns off the 2G network layer, the bulk of energy savings will come from shutting down the power amplifier that corresponds to the 2G network.

Now that we have quantified the amplifier’s contribution to total energy use, will this 38% figure be enough to measure the benefits of shutting down the 2G and 3G layers? Actually, we still need one more number: the energy consumption of the power amplifier for each technology. In other words, what is the energy consumption percentage for each of these technology layers? Let us have a look at this in Figure 4.

Figure 4 is a presentation of the key components in a base station and their typical energy consumption, in three different network configurations. The columns show the configuration of a typical base station, and the rows are the affecting elements, mainly the power amplifiers. The gray colored boxes are the elements needed for the 2G and the 3G layer, blue colored boxes are the elements needed for the 4G layer, green colored boxes are the elements needed for 2G, 3G, and 4G, and lastly, the orange colored boxes are elements needed for the 5G layer.

Figure 4: Energy consumption of key components in a base station, across three network configurations

Sources: MTN Consulting; Huawei Technologies

The values inside the elements represent the maximum energy consumption of that element. So as shown in figure 4, in 2G/3G only, the base station consumes 3.9kWh. By adding a 4G layer onto the base station, you increase the energy consumption of this base station by 51%. By adding a 5G layer on top of the 2G, 3G and 4G base station, you can expect another 66% increase in energy consumption. The red arrows in Figure 4 indicate these increases in maximum energy consumption.

That 66% figure illustrates one thing that is scary about 5G: yes, it may offer revenue upside, but it also consumes lots of power to operate 5G, which costs money and has climate impacts.

For this blog, though, what we really need to know is the contribution to total energy consumption of the legacy network elements as you upgrade to newer technology. These values are presented in figure 4 in the yellow arrows. So, in 2G/3G/4G base stations, about 40% additional energy is consumed by holding on to the 2G and the 3G layer. Similarly, in a combined 2G/3G/4G/5G base station, roughly 24% extra energy is consumed because of still holding the 2G and the 3G layers in this base station.

We now have the estimates we need to find the impact of supporting the 2G/3G network layers alongside 4G/5G for a typical mobile operator.

Approaches to 2G/3G network shutdowns vary depending on current network design

Right now telcos are wrestling with the best way to deal with legacy networks, while they upgrade to 5G. The ideal solution depends on the current position of the operator’s network. In the following table, you can see some potential paths to 2G/3G network shutdowns and the impact on energy consumption. In the first scenario, where the telco currently has only 2G and 3G network layers, an upgrade straight to 5G would result in an approximate 50% reduction in energy costs. In the last scenario shown on the bottom of the table, where an operator is simultaneously operating 2G, 3G, 4G, and 5G networks, the ideal solution is to shut down the 2G and 3G layers. This would save an estimated 40% in base station energy consumption.

Of course, energy costs are not the only factor in planning 2G/3G network shutdowns: spectrum, regulatory, legacy service revenue, and other factors also matter. But telcos nowadays are very focused on reducing their opex burden whenever possible, given weak revenue growth. As such, energy costs are a central focus of most telcos.

Table 1: Energy usage impact of 2G/3G shutdown scenarios

Mobile network’s current scope	Likely migration path for 2G/3G shutdowns	% reduction in energy use for typical base station
2G and 3G network	Upgrade straight to 5G, bypassing 4G, then shut down both 2G and 3G	50.0%
2G and 4G network	Upgrade to 5G then shut down the 2G layer	30.1%
3G and 4G network	Upgrade to 5G, then shut down the 3G layer	33.2%
2G, 3G and 4G network	Upgrade to 5G, then shut down both 2G and 3G layers	39.9%
3G, 4G and 5G network	After upgrading all sites to 5G, shut down the 3G layer	33.2%
2G, 4G and 5G network	After upgrading all sites to 5G, shut down the 2G layer	30.1%
2G, 3G, 4G and 5G network	The operator is ready to shutdown both the 2G layer and the 3G layers	39.9%

Source: MTN Consulting

The above table represents cost savings for the “typical” mobile-only telco we described early in the blog. In follow-up blogs, we expect to detail the impacts of 2G/3G network shutdowns for a few specific mobile operators in different regions of the world.

The author, Samir Ahmad, is a telecommunications and IT consultant based in Amman, Jordan. Samir has a Master’s in Telecommunication, Electrical, Electronics, and Communications Engineering, from the University of Sydney, and a B.S. in Electrical Engineering – Communications & Electronics, from the Jordan University of Science & Technology. Prior to entering the consulting field in 2017, Samir worked for Zain Jordan for 8+ years, most recently as Expert, RF Planning and Optimization.

Telco capital intensity hits 10 year peak in 2Q22

Posted on 06/09/2022 | 20/04/2023 by Matt Walker

Vendors continue to wrestle with supply chain constraints in the telecom sector. That’s clear from several recent vendor earnings reports, including those issued by Dell, HPE, and Ciena in recent weeks. Telco spending, though, has surged in recent quarters. With 2Q22 results now compiled, the industry has reached a new capex peak. For the 12 months ended June 2022, telco capex was $329.5 billion (B), while the ratio of capex to revenues (i.e. capital intensity) was 17.8%. Both figures represent new record highs, at least for the 46 quarter (11.5 year) period that MTN Consulting data covers (1Q11-2Q22).

On the supply side, vendors selling into the telco vertical are seeing some growth, in aggregate. For the broadly defined “telco network infrastructure” (telco NI) market, revenues were $60.1B in 2Q22 (up 4.1% YoY), or $237.6B on an annualized basis, up 6.7% YoY. The telco NI market includes some vendor revenue streams which dip into telco opex, not capex, but there is usually a correlation between total capex and vendor revenues.

The figure below illustrates telco capital intensity over the last several years.

What’s behind recent capex growth

One factor behind the recent capex spending spike is a post-COVID bump. Economies shutdown during COVID, depressing network spend. The capital intensity effect is shown in the figure, above (“COVID slide”). Capex also dropped in absolute terms. Annualized capex bottomed out at $299.8B in 2Q20. Some of the current growth is just making up for lost time. The quarterly average hasn’t changed much, if you expand the time horizon. For the last ten quarters, from 1Q20 (the onset of COVID) through 2Q22, telco capex averaged out to about $77.9B per quarter. For the ten pre-COVID quarters, the average was $78.5B.

Another factor is many telcos are scaling up initially small 5G deployments, and beginning to build out 5G SA core networks. 5G RAN builds have been underway for several years, but the spending has been small to start due both to the software-centric nature of 5G networks and telcos’ desire to wait for new revenue models to emerge. Incidentally, a shift to 5G core spending tends to benefit a different type of vendor – not just the Ericssons and Nokias of the world. Cloud providers AWS, Azure and GCP, for instance, are all actively involved in helping telcos with 5G core migrations. Their collective revenues in the telco vertical were about $3.4B for the 12 months ended June 2022, up nearly 80% YoY. Many of the vendors involved in this are less vulnerable to supply chain issues.

Another capex plus: fiber spending is strong in a number of markets, especially the US but also in Europe, Australia, China, and India. That’s to support FTTx deployments but also to connect together all the new radio infrastructure needed to support 5G. Government subsidies and other investment incentives are a factor as well. Vendors focused on fiber optics are seeing strong growth right now. For instance, Corning and Clearfield saw their telco vertical revenues grow by 25% and 84% YoY in 2Q22, respectively.

Supply chain limitations have a mixed effect. They sometimes mean delay or cancellation of projects, which cuts capex in the short term. They also can mean price increases, though, as telcos push suppliers to accelerate timelines or adjust designs to work with available alternatives. This can result in projects costing more than expected. Let’s not forget, though, that a huge portion of telco spend is unaffected by current supply chain constraints. Services- and software- focused vendors – like Accenture, Amdocs, IBM, Infosys, TCS and Tech Mahindra – are not citing supply chain issues as a drag on results.

Inflation is a bit more straightforward. This has impacted the entire telecom food chain, from chips to components to systems to services. All else equal it causes an increase in US$ capex, though the impact on capital intensity is less clear.

Finally, there’s China. Given how closed a market this is, there’s not as much attention paid to it nowadays. But China’s capex has been growing recently. For the 2Q22 annualized period, Chinese telco capex totaled $58.3B, up 12% from 2Q21. That growth comes despite efforts to share costs on the network side.

China is also relevant to the vendor share question. Huawei continues to rank at the top of the global telco network infrastructure (telco NI) market. For the 2Q22 annualized period, we estimate its telco NI share at 18.7%, far ahead of Ericsson (10.9%) and Nokia (8.9%). This surprises some, as Huawei has become a non-factor in many markets over the last two years. Yet Huawei’s stability is no mystery. It’s dominant at home, and local telcos have been spending big, and steering more of their capex dollars to local suppliers over the last couple of years. Huawei also has a huge customer list overseas – these revenue streams don’t just disappear overnight, especially since many telcos remain loyal to the vendor.

Hardware hit hardest in supply chain crunch

Vendors recorded about $237.6B in sales to the telco vertical for the 2Q22 annualized period. This is a huge market, with many different players; MTN Consulting stats track 132. Some supply the latest and greatest hardware innovations. They often have high margins but can also be subject to supply chain hiccups. Vendors specializing in solutions which revolve more around software and/or services tend to have different constraints. Labor cost and availability is always a concern, but hardware is rarely an issue. We believe the current supply chain disruptions will improve in the next couple of quarters, though. Even those vendors hit by short-term supply issues are generally optimistic. For instance, Gary Smith, Ciena’s CEO, noted last week that “Despite supply chain challenges and elongated lead times, strong secular demand trends show no signs of abating. And we remain confident that the fundamental macro drivers propelling this demand are durable over the long term.”

The biggest near-term risk to that is China’s ongoing series of COVID shutdowns. Longer term, the bigger risk is any interruption to Taiwan’s ability to continue functioning as an independent, self-governing country – it plays a key role in the telecom supply chain, and that of many other sectors. This issue is the elephant in the room that few like to address, but all vendors need to have a plan for this worst case scenario.

Source of cover image: iStock

Vendor landscape continues to shift in telecom market as cloud and 5G scale

Posted on 29/07/2022 | 20/04/2023 by Matt Walker

Telco network spending has been on the rise over the last few quarters. Vendor sales of network infrastructure to the telco vertical (“Telco NI”) totaled $55.5B in 1Q22, up 5.7% YoY. On an annualized basis, Telco NI revenues through 1Q22 were $234.8B, the highest total in our 1Q13-1Q22 database and 6.8% higher than the 1Q21 annualized figure. Telco capex has been strong the last few quarters, and vendors are benefiting. The growth is not dramatic, but any kind of growth at all in telecom is a plus, and often a surprise.

As telco spending has risen post-COVID, the top few vendors remain at the top. While share always varies a bit by quarter, the biggest five network equipment providers (NEPs; excludes China Comservice) have collectively accounted for about 50% of the Telco NI market over the last few years. Figure 1 shows annualized share evolution for these vendors, from 1Q19 through 1Q22.

Figure 1: Annualized market share of top 5 NEPs in the telco vertical, 1Q19-1Q22

Source: MTN Consulting

While the top 5 remain the same and their aggregate share of wallet is stable, there are some significant shifts underway in the vendor landscape.

What drives these shifts? Some are driven by financial machinations or politics, but most are aimed at improving competitive positioning. More specifically, improving a vendor’s ability to address key customer needs. In the telco vertical, these include: deploying telco cloud functions and architectures; monetizing new network capabilities, in particular 5G; lowering the cost of transport and routing; improving the energy efficiency of networks; automating networks; lowering the cost of customer acquisition and retention; and, developing revenue streams in new areas like mobile payments, digital advertising, home networking, connected cars and security. There are probably more shifts underway nowadays because 5G cores are beginning to be implemented in a big way, and Huawei’s problems continue to open up new opportunities for smaller vendors.

Most of the shifts in the vendor landscape involve smaller players, outside the top 5. Ericsson’s acquisition of Vonage is an exception; MTN Consulting published a blog post on this deal in May. Setting aside the top 5, ongoing changes in the vendor landscape fall into a few broad categories.

Growth of the cloud providers

Alphabet (GCP), Amazon (AWS), and Microsoft (Azure) together booked approximately $3 billion in revenues to the telco vertical for the 1Q22 annualized period, from less than half a billion USD in 2Q18-1Q19. They now partner with telcos on a range of areas, as MTN Consulting mapped out in the report “Telcos aim for the cloud by partnering with webscale cloud providers.” Their aggregate share of Telco NI is now about 1.3%, around the same as Accenture and a bit more than IBM. They have a long way to go, but they are already making a dent in the market and continue to invest heavily in the telco vertical.

Most of the cloud providers’ success in telecom stems from organic investment, but not all; Microsoft has completed three acquisitions that accelerated its push into telecom: Affirmed Networks, Metaswitch, and AT&T’s Network Cloud.

Vendor partnerships with webscalers

As webscalers began to make a real dent in the telecom market in 2020, traditional telco-facing vendors realized they could benefit from some joint development and marketing ventures with the webscalers. That was especially apparent as telcos began to deploy 5G cores and needed cloud smarts from their suppliers. Over the last three years, most big telco-focused vendors have entered into partnerships with traditional telco-facing vendors like Ericsson, Nokia, NEC, Fujitsu, and Amdocs. Some of these are generic, some are customized for specific large telco accounts, e.g. Telecom Italia.

Restructuring and realignment

Dell, including its majority holding in VMWare, saw its revenues in the telco vertical rise steadily in the 2019-21 period. The company’s 2021 revenues in telecom amounted to just over $2.7B. VMWare is responsible for much of this, boosted by its Telco Cloud offerings. Late last year, Dell spun out its majority holding in VMWare. This was aimed partly at raising cash, but also at creating more value in VMWare, which has a different business model and profit margins than parent Dell. The two retain strong connections and partnerships, including in the telco space.

Since the Dell-VMWare spin-off in 4Q21, a bigger shift has occurred: in May 2022, Broadcom agreed to acquire VMWare, for $61 billion. Broadcom says the deal will combine its software portfolio with VMWare’s multi-cloud offerings. Telco is only one of many reasons for this deal, not a central one. Prior to the deal, Broadcom alone did have some small position in Telco NI, due largely to previous acquisitions (Brocade, and CA Technologies). The synergies involved in this deal seem questionable, but importantly Broadcom claims it will allow VMWare to operate with a degree of independence.

In the same quarter as Dell’s spinoff of VMWare, IBM separated its services group into a new company, Kyndryl. This deal was also driven by an interest in separating two companies with significantly different business models and profit margins. Both go after telco business though. Red Hat is at the core of IBM’s efforts to improve its penetration of the telco sector, and it has had some success. Kyndryl inherits many relationships with telcos cultivated by IBM’s services group over the years. That includes deals with Bharti in India, including a blockbuster $1.4B deal for IT operations outsourcing, way back in 2004. Interestingly, 5G monetization is front and center of Kyndryl’s messaging for the telco vertical, which is a similar driver to what’s behind Ericsson-Vonage.

Still pending: CommScope has been attempting to spin out its Home (CPE) division for several quarters, but there is no confirmed buyer. There’s some chance that the company will just reintegrate the division, as options are limited. Acquisition by private equity is likely being considered, though.

Telcos investing directly in technology supply

There are a few cases of telcos either creating a vendor in-house or acquiring a large ownership stake in one which already exists:

Rakuten Symphony: Rakuten’s creation of Symphony is most notable in recent years – the highest stakes, and probably the most expensive. Payoffs may be many years down the road, as more telcos consider open RAN for brownfield networks and Symphony develops more of a track record.
Tata Sons-Tejas Networks: Tejas Networks sold a controlling stake (43.4%) in July 2021 to Tata Sons group, which wants to help Tejas grow. The Tata group includes a telecom division, Tata Communications, with $2.3B in 2021 revenues, making it India’s fourth largest private telco. Tejas is focused on optical networks.
Verizon-Casa: in April 2022, Verizon announced it would invest $40M in one of its smaller vendors, Casa Systems, at the same time as agreeing to a multi-year contract.
NTT-NEC: further back, in June 2020, NTT announced a $560M investment into key supplier NEC, for a 4.8% stake in the company. This aimed partly at helping NEC expand its 5G offerings and leverage an opening in the global market for wireless technology opened up when Huawei began to face supply chain and political constraints in 2019-20.

Vendor-vendor M&A deals

The vendor landscape also continues to be impacted by more traditional M&A deals, where a vendor acquires another technology supplier. Some of the recent transactions include:

NEC: this Japanese vendor has committed to expand in the mobile technology space, with focus on open RAN. Earlier in July, NEC agreed to acquire Aspire Technology Unlimited, an Ireland-based systems integrator, to help with this pursuit.
ADVA-Adtran: these two small but profitable wireline vendors announced plans to merge in late 2021, and the deal just closed. The new company, ADTRAN Holdings, may have a leg up in pursuing the many transport network upgrades and broadband access buildouts underway worldwide right now. The new ADTRAN may also be better able to deal with supply chain constraints, which continue to be an issue for smaller NEPs.
Sterlite: this India-based optical supplier has been growing over the last few quarters, exploring overseas markets for fiber optics, launching a small range of wireless products, and acquiring a UK-based systems integrator, Clearcomm Group, in 2021.
Accenture: has spent heavily on a wide range of acquisitions in the last two years, across industry verticals. Deals impacting telecom include Arca, a Spanish engineering services company, in 2020; umlaut, a German network engineering, testing and analytics company, in 2021; and Advocate Networks, a technology consultancy and managed services provider, in 2022.
Aviat-Ceragon: most mergers are friendly, where both sides agree. As Elon Musk’s attempted purchase of Twitter reminded the world, there are also less friendly forms of acquisition. This Aviat-Ceragon deal is basically a hostile takeover of Ceragon, proposed by Aviat. It’s still pending and the two parties may not come to agreement. However, the motive is worth noting. Aviat’s hope is that the deal would give the combined company more scale and better margins, and a stronger ability to compete with Huawei, Ericsson and Nokia in the wireless transport space as opportunities arise for 5G backhaul & fronthaul and support for private wireless networks.

Finally, one significant acquisition involves a large established telco-facing vendor acquiring telco assets. In September 2021, Ciena acquired AT&T’s “Vyatta” virtual switching and routing technology. As Ciena said at the time, the deal aims to address “the growing market opportunity to transform the edge, including 5G networks and cloud environments.” Many shifts in the vendor landscape aim at this same opportunity.

Photo by Hans-Peter Gauster on Unsplash

After failure to adapt to 4G, telcos need to evolve

Posted on 19/05/2022 | 20/04/2023 by Matt Walker

It was the Greek philosopher Heraclitus who coined the phrase, “Change is the only constant in life.”

Well over a thousand years later, Benjamin Franklin continued the thought, saying, “When you are finished changing, you are finished.”

From the wheel to the internet and beyond, the need for change, for new ideas, new technologies, has been a defining element of humanity. Through trial and error, innovators conceive of an idea, conduct research, prove their hypotheses, and develop and refine their concepts. Such research and development have become absolutely vital to the success of the telecommunications industry. Without R&D, humanity might never have evolved past the rotary-dial telephone. There would be no internet, no cell phones, none of the technological marvels we often take for granted … amazing tools that our predecessors likely could not have envisioned even in their dreams.

Or… perhaps they did. After all, the myriad technologies of science fiction are continually becoming science fact. For example, many of the technologies of the original “Star Trek” are commonplace today. The communicators, viewscreens and tricorders of that fictional future exist today as cell phones, laptops, video chats, and advanced sensor packages.

AT&T is another example. Back in 1993, the telecommunications provider (telco) aired commercials that examined what its researchers were developing, and extrapolated the impact of those technologies on the future. The commercials accurately predicted global positioning systems, laptops, tablets, smart watches, keyless entry and on-demand video entertainment … in an era before most homes even had internet connections or home computers.

That was nearly three decades ago. In the time since, you’d expect that AT&T would be spending more on R&D, particularly this far into the digital age.

You’d be wrong.

From 2000 to 2021, AT&T’s annual spending on R&D hovered between 0.7 percent to 1.3 percent of its total revenue. For 16 of those 22 years, AT&T’s R&D expenditures remained less than 1 percent of the company’s total revenue.

Surprised?

Don’t be.

Other telcos show much the same spending pattern. From 2018 to 2020, SK Telecom spent an annual average of a mere 2.2 percent of its revenue for R&D expenses. Telefonica spent less, at 2 percent. NTT spent 1.9 percent; Chunghwa Telecom, 1.8 percent; Orange, 1.6 percent; Comcast and KT Corp., 1.1 percent; and China Telecom, 1.0 percent. Most others, including AT&T (0.7 percent) and LG Uplus (0.4 percent), spent less than one percent of their overall revenue on R&D.

“Telcos (tend to) spend very little on R&D, instead relying mainly on their suppliers for innovation,” Matt Walker, chief analyst at MTN Consulting. “The world has hundreds of telcos but only a few dozen significant suppliers, so some of this is inevitable. The smaller telcos can’t afford to do it all themselves,” said Walker, as they often lack the staffing or the financial resources to conduct their own R&D.

On top of their lack of spending, telcos are also largely slow to innovate. When 4G wireless debuted, telcos rejoiced at the idea of earning new revenues from the networks, which were expensive. However, the majority of the revenue from the new networks went to the companies that build telecommunications devices, like Apple; app companies; content providers, like Netflix; and cloud services companies. This left telcos out in the cold, as they could buy the technology needed to provide 4G, but not truly profit from it.

When 5G networks emerged, the telcos spent big, again hoping for a revenue upside from the investment. Thus far, however, they are in the same position where 4G left them … not benefitting financially, and still wary of spending much on their own innovation and R&D.

“This arrangement worked alright when telcos had limited competition from other sectors,” Walker noted. “However, in the last five years or so, these new ‘big tech’/webscale players have begun encroaching on different aspects of the telco turf.”

Are telcos doomed to repeat the same mistakes? Hopefully not.

Should they be spending more on R&D to help develop new revenue streams? Yes.

Are there examples of leaders in the sector to learn from? Yes.

Telcos should not have to wait on their downstream vendors to innovate and create new technologies, from which they can benefit. Instead, they should take advantage of the growing and rapidly evolving technologies and innovate on their own.

Indeed, some industry leaders are already beginning to call for such a paradigm shift. Aaron Boasman-Patel, vice president of AI & Customer Experience at TM Forum, and Brian Smyth, Accenture’s Global Comms & Media Innovation Lead, conducted research on the matter, the results of which they published in their white paper, “The tech-driven telco.”

“At the most basic level, the world has changed since the telco business model was introduced,” said Smyth. “… At Accenture, we see three mega trends, the first one being the customer – so how we live our life, how we engage with civil society and government, how we work; the second being business model reinvention, … how technology transforms not only customer experiences, but also how customers buy into products and services. We’re seeing within this also a big focus on partnership and partnering together with other organizations to offer new services and experiences.”

“And then finally, it’s the technology revolution. So, in telcos a lot of talk today is around 5G, edge networks, and a lot of this is the confluence of these three points of customer imagination, reinvention, and the technology revolution I think are all leading to this transformation from the traditional telco” to a more tech-driven model.”

Added Boasman-Patel, “If you don’t evolve, then you’re not going to be able to take a slice of the pie – the $700 billion worth of new revenues which are out there today. … If you think about, what we’ve seen through the pandemic, telecoms shares have increased by about 4.8 percent compared to other industries like semiconductors and electronics up by nearly 50 percent, media technology, high 35 percent. … I think when you get above 20% of (revenue spending), whether in industrial manufacturing, or sensor management or whatever it may be, that’s where you can start to say you have become a true techco,” he said.

In November 2021, Ericsson, the world’s second-largest supplier of technology to telcos, surprised many observers by announcing that it was purchasing Vonage, a cloud communications company. That one company would acquire another is standard fare for financial news. Also, it wouldn’t be unprecedented for a telco to buy one of its vendors. The November deal, however, was the reverse: Ericsson, a vendor/supplier to telcos, was buying Vonage, a telco.

“That deal was surprising because it was a traditional vendor buying what seemed to be a telecom provider/telco, i.e. Vonage,” noted Walker.

Unlike the typical telco, vendors do usually spend quite a bit on R&D. Ericsson, for example, spent an annual average of 17 percent of its revenue for 2019-2021. Many others spend less, including Alphabet and ZTE (15 percent each); Microsoft (13 percent); Amazon (12 percent); Samsung (9 percent) and IBM (8 percent). In contrast, Ribbon Communications spent 24 percent; Juniper Networks (21 percent); Nokia (19 percent); and Huawei (18 percent). Alphabet and Microsoft are included in these figures because their cloud divisions GCP and Azure, respectively) have become important suppliers to telcos.

Figure 1: R&D spending as % of revenues for select Telco NI vendors, 2019-21 average

Source: MTN Consulting

Ericsson made the $6.2 billion deal in the hopes that, if approved by regulators, its acquisition will help it work with telcos to better monetize apps and services. Ericsson has mapped out a plan to help their telco customers get new sources of revenue from the new networks currently being built. Its acquisition of Vonage means that it now has a telco subsidiary with a dedicated R&D mission. Indeed, unlike the regular low numbers shown at other telcos, Vonage’s R&D numbers tend to trend higher. In 2011, Vonage spent 1.8 percent of its revenue of R&D. In 2014, that number rose to 2.4 percent. In 2019, it hit 5.8 percent, then rose to a high of 6.5 percent in 2020 before dipping to 5.7 percent.

Indeed, Vonage hews closer to the “techco” model favored by Boasman-Patel and Smyth than it does to that of a standard telco model.

“I think mindsets are really important here to drive that change,” said Smyth. “A really interesting example is Microsoft. When Satya Nadella took over Microsoft in 2014, at that point they were hugely profitable as an organization, but not very exciting. And Satya talked about actually wanting to build an organization and products and services that customers would love. And they had missed big trends at this point. They had missed things like search (engines) and mobile, and a lot of people were questioning whether Microsoft’s best days were really behind it at that point, where he came in with this focus on building this growth mindset.

Smyth continued, “The growth mindset is actually … about shifting from the sort of know-it-all to the learn-it -all mindset and being hungry and open to change and collaboration. And what we’ve seen since is a 10x growth in the market cap of Microsoft. And an incredible performance and a complete refresh of the brand, attracting young talent, attracting the next generation of sort of leaders across new technology domains and re-cementing their position in future technologies, whether it’s cloud, or now looking at the metaverse.”

Vonage, like Microsoft, leaned into its own evolution.

“Vonage was no longer just a telco” by the time Ericsson announced the acquisition deal in 2021, said Walker. “It started life as this, but had evolved more into a hybrid in the last five years, creating lots of its own intellectual properties (IP). From 2018 to 2021, Vonage spent about 6 percent of revenues on R&D, way higher than the average telco, and closer to a vendor.”

Indeed, Vonage’s most recent annual report tells the story of its evolution from telco to techco: ““Founded in 2001, Vonage was among the first companies to provide Voice over Internet Protocol technology offering feature-rich, low-cost home phone services. Through a series of strategic acquisitions and organic growth, Vonage since has transformed from a VoIP-based residential service provider to a global leader in business cloud communications.”

Vonage also has a long list of patents, which helps fuel its innovations.

“Vonage does some things that don’t look like what a vendor (Ericsson) would normally do,” noted Walker. “But Vonage’s R&D creations (will) allow Ericsson, in theory, to provide valuable support to its other telco customers in an important area, i.e. monetizing the network through use of APIs,” or Application Programming Interfaces, which permit different applications to communicate.

Although most U.S. telcos continue to play it safe, telcos in the United Kingdom have begun to increase their R&D sending. In 2020, they spent over 1 billion pounds (1.2 billion pounds, or $1.56 billion USD) on R&D … the first time they have done so in nearly 10 years.

According to the British Office for National Statistics, the telco sector boosted its R&D spending by 4.5 percent during 2020, to 1.03 billion pounds. They last spent that type of money on R&D in 2011, when they spent 1.04 billion pounds.

However, not surprisingly for a time during a pandemic, UK R&D spending by telcos and all other industries remained in the shadow of pharmaceutical sector, which boosted its R&D spending by 6 percent to 5.02 billion pounds ($6.19 billion USD).

“There’s a demand from industry to actually partner and collaborate with (communications service providers) to build out these new services,” said Smyth. “… It’s quite interesting from some of the initial feedback we’re hearing there is a desire on the CSP side to really just offer connectivity solutions, sell connectivity. So, I think what industry is looking for is support in solving their business problems. And I think there’s great opportunity for CSPs as they’re building the scalable platforms to actually go in and partner and co-create with industry to build solutions.”

4G set sail some years ago, and telcos largely missed the boat. It’s still relatively early in the rise and growth of 5G. Hopefully, telcos will learn from the mistakes they made with 4G. If they prioritize creating and funding new R&D initiatives, they can evolve into more technology-driven companies. This will allow them to benefit, in terms of technology and revenues, from 5G.

It’s not too late for telcos to fully get on board with 5G … before that opportunity also sails out of reach.

About the author

Melvin Bankhead III is the founder of MB Ink Media Relations, a boutique public relations firm based in Buffalo, New York. An experienced journalist, he is the president of the Buffalo Association of Black Journalists, and a former editor at The Buffalo News.

Cover image: iStock

Cisco, Samsung, and ZTE benefit most from Huawei bans in 2021 telco NI market

Posted on 29/03/2022 | 21/04/2023 by Matt Walker

2021 results for the 100+ vendors selling into the telco market are just about finalized. Contrasting 2021 “telco network infrastructure” (Telco NI) share with 2020, Cisco clearly came out on top, gaining 0.7% share in a market worth $231.4 billion (B). Cisco was helped both by a telco shift in 5G spending towards core networks, and Huawei’s entity list troubles. Samsung’s share growth of 0.3% was due to a big win with Verizon and a growing telco interest in seeking RAN alternatives beyond Ericsson and Nokia. ZTE, which has escaped the US entity list to date, also picked up some unexpected 5G wins but its growth is more broad-based due to optical, fixed broadband, and emerging market 4G business.

Dell (including VMWare), Microsoft, and Amazon also picked up share as telcos have begun investing in 5G core and cloud technologies. Their growth has little to do with Huawei, and more due to telcos’ ongoing changes to network architecture and service deployment patterns. Corning was an unexpected winner in 2021, gaining 0.2% share on the back of fiber-rich wireless deployments and government support for rural fiber builds.

On the flip side, both Nokia and Ericsson lost share in the overall telco NI market in 2021. Their RAN revenues benefited from Huawei’s troubles in 2020 but telco spending has since shifted towards product areas with more non-Huawei competition. Both vendors are attempting to diversify beyond the telco market, with Nokia so far having more success; its non-telco revenues grew 12% in 2021.

Huawei’s share of telco NI declined to 18.9% in 2021, down from a bit over 20% in both 2019 and 2020. The US Commerce Department’s entity list restrictions were issued in May 2019 but hit the hardest in late 2020 and 2021, after Huawei’s inventory stockpiles began running out.

Huawei’s messaging on its recent fall is muddled. During its annual report webcast yesterday, it cited three factors behind its 2021 revenue decline: supply continuity challenges, a drop in Chinese 5G construction, and COVID. In MTN Consulting’s opinion, supply continuity was the main factor. A related factor were the many government-imposed restrictions on using Huawei gear around the world, especially in Europe where 5G spending was strong in 2021. The other two factors cited by Huawei’s CFO, however, are misleading. Chinese telco network spending, overall, was relatively strong in 2021: total capex for the big three telcos was $52.8B, up 8% from 2020. Without this rise, Huawei’s 2021 results would have been worse. As for COVID, few other vendors cite the pandemic as a factor restraining 2021 telco spend. More vendors cite the opposite: 2021 spending was strong in part because telcos were forced to delay many projects during COVID’s early spread.

To date, Huawei’s troubles have impacted RAN markets the most, but in 2022 and 2023 will begin spreading more clearly to IP infrastructure, optical, microwave, fixed broadband, and other areas. A number of vendors are eager to pursue new opportunities as this happens, including Adtran/ADVA, Ciena, Cisco, CommScope, DZS, and Infinera. The CEO of Infinera, in fact, said on its 4Q21 earnings call that “it was a nice taste, a nice appetizer in 2021, but…we said all along that we would see the design wins and RFPs really scaling and we thought that we’d see revenues from that really beginning to take hold as we got into 2023.”

To date, Huawei has been unable to fully adapt to the supply chain restrictions put in place in 2019. It remains the global #1 in telco NI, however, due to dominance in China and a huge installed base across the globe. The company is investing heavily in carrier services & software, Huawei Cloud and new product areas. One certainty is that it won’t simply fade away, despite the current decline.

Connected cars: Telco strategies and growth opportunity

Posted on 15/07/2021 | 19/07/2022 by Arun

Connected Car Emerging Tech Series Part 2

Author: Waseem Haider

In the first part of this series we outlined the role of telcos in the connected car ecosystem. Historically, telcos are well experienced in adding value to adjacent verticals based primarily on their core assets. Some of the verticals where telcos have already made a mark are Smart Home, Utilities/Smart Energy, Finance, Retail and Public sector, to name a few. Telcos are now making their mark in connected cars.

Telco connected car strategies

Connectivity is the cornerstone of any connected car and telcos have a competitive advantage in providing safe and reliable connectivity. However, with the ever-expanding connected car ecosystem, it is not only connectivity which telcos bring to the table but also other capabilities. In this write-up we will have a look at what different strategies telcos are implementing in the growing connected car market.

Core strategy: connectivity

As part of telcos’ strategies in the connected car space, Figure 1 provides an overview of connectivity categories.

Figure 1: Automobile connectivity categories

cc part 2 fig1

Source: McKinsey & Company

Connectivity is a vital part of the technology stack seen in connected cars being manufactured by OEMs. Some of these cars are capable of exchanging data and information not only in-vehicle but also with the external environment (see Figure 1, above). V2X (vehicle-to-everything) encompasses all the related terms – communication with other vehicles (V2V), networks (V2N), infrastructure (V2I) and pedestrians (V2P). Most of the OEMs already allow car owners to connect, monitor and interact with their vehicles. As we move towards autonomous vehicles in future, cars will rely on connectivity to communicate with one another and the external environment. Broadly, connectivity for any connected car falls into two major types:

Cellular & Satellite (Network based communication)
Wireless point-to-point (Direct communication)

Network-based Communication is long-range, also known as V2N (vehicle-to-network) communication, where V2N employs telcos’ commercially licensed spectrum. Connected cars also have access to cloud services and other security offerings of telecom networks.

Direct Communication involves short-range wireless communication between nearby vehicles (V2V), infrastructure (V2I) such as traffic lights, and pedestrians (V2P) where vehicles communicate directly with the device carried by pedestrians. In some specific scenarios such as non-line-of-sight (NLOS) objects, cellular network-assisted direct communication is of relevance.

Regardless of the type of communication, telcos are playing a significant role in providing connectivity to today’s connected cars today, and will do so in the future when autonomous cars will be commonplace. The telcos are working with a mix of complementary technologies to enable reliable and safe connectivity to connected cars like 4G/LTE, Satellite, DSRC (dedicated short-range communication) and 5G for autonomous vehicles with low latency and more reliable communication compared to existing technologies.

Adjacent strategy: VAS (value-added services)

Apart from providing reliable and safe connectivity for the connected cars ecosystem, telcos have an edge in deploying integrated solutions which leverage their experience working with multiple partners. Telcos are uniquely positioned to manage value-added services (VAS), collaborating across consumers and OEMs. There is no “one-size fits all” strategy and strategies can vary across telecom operators, depending upon which area of the connected car value chain they are focusing on and where they want to compete.

As customer expectations are increasingly high and technology is much more advanced, telcos can be at the forefront of new emerging use cases in the connected car space. Some of the most popular value-added services which are part of telcos’ offerings are:

Cloud-based integrated platform
Customized billing solutions
Telematics and big data analytics platform
Other VAS

Some of the specific examples of value-added services provided by Telcos in the connected car space are:

Lost/stolen vehicle recovery end-to-end service
Usage-based insurance
Vehicle location monitoring
Pay-per-use billing for in-vehicle services
Cross-device identity management
Fleet management services
Data management across IoT sensors
Vehicle/Infrastructure data integration services
Vehicle and device security solutions

Future strategy: end-to-end mobility services

The future of mobility is more connected, intelligent, shared, and autonomous, which creates a plethora of opportunities for telcos. One of the biggest opportunities coming out of the shifting mobility landscape is the leveraging of all the data generated by vehicles. For example: the in-vehicle infotainment data could be analyzed by telcos to track consumer usage to advise content producers, advertisers, and media houses on consumption patterns, and can be monetized by telcos, leveraging consumer data insights. Another example is fleet management services including tracking, dispatching, and scheduling fleets. Telcos can make use of customer profile data and other authentication details to manage vehicle access on behalf of fleet operators.

However, any opportunity emerging from data monetization in the connected car space is surrounded with challenges. Some of these challenges are – who owns the data? Are consumers willing to pay for data services and/or provide consent to use their personal data? Are automotive OEMs ready to share the pie with telcos and other ecosystem players? What measures are telcos undertaking for data protection and security? Telcos can overcome some of these challenges based on their history of managing sensitive customer data while ensuring personal data protection. This gives the telco an edge to provide data-based products and services, including targeted advertising, pay-as-you-go infotainment, Mobility-as-a-service (MaaS), consumer health monitoring including user-based insurance etc.

Additionally, with the roll-out of autonomous vehicles and 5G, telcos will continue to work on more innovative products and services, to bring a differentiated offering to end-users and other ecosystem partners. The future role of telcos in the a connected car space will be providing broader mobility solution, going beyond connectivity and value-added-services.

Figure 2 below illustrates how telco strategies in connected cars may evolve, from point solutions to transformational, end-to-end mobility experiences.

Figure 2: Telco strategy evolution in connected car market

cc part 2 fig2

Source: Deloitte

Case Study: AT&T

AT&T has a dedicated connected car platform called “AT&T Drive”. This is a modular platform which allows auto OEMs to choose from a range of services, from connectivity to revenue management solutions. AT&T is working with various stakeholders – automakers, developers, and other suppliers – to design customized solutions to bring new services to connected cars. Some of the services provided by AT&T in concert with other solution providers in the connected cars ecosystem are:

Amdocs: Customized Billing solution

Ericsson: Global Application delivery platform

Accenture: Telematics and Big Data Analytics

Jasper Wireless: Global cloud-based connected device platform

Figure 3 illustrates AT&T’s current proposition in the connected car market.

Figure 3: AT&T’s Connected Car Positioning

cc part 2, fig3

Source: AT&T

Conclusion

MTN Consulting believes that telcos have real revenue upside opportunities in the connected car space. However, for that to become a reality, there is a need for telcos to think out-of-the-box in terms of future strategies. Telcos should aggressively build capabilities which they do not own traditionally, even if that means new partnerships and alliances to develop service portfolios around the connected car landscape. For instance, they could partner with augmented-reality providers to demonstrate the ability to deliver enhanced multimedia content experiences within the vehicle, and they could partner with fleet management service providers to provide intermodal mobility device tracking, monitoring, and interoperability.

Image Source: Toyota

5G positioning update: Intel and Nokia

Posted on 01/07/2021 | 19/07/2022 by Arun

Intel and Nokia 5G Update

Author: Arun Menon

MWC was held in person this week, for the first time since February 2019. With all the hype about MWC’s re-emergence, it’s easy to forget that vendors update the analyst community on products & strategy all the time, independent of trade shows and conferences. That’s all the more true since COVID-19 virtually killed the trade show, and a nonstop stream of online events took over the analyst’s schedule. Vendors still do pre-brief analysts in advance of important events like MWC, though. Intel and Nokia both did so in late June. Nokia addressed 5G core and hyperscale issues, while Intel provided an update on its overall 5G network and edge strategy.

Nokia: “The future of 5G Core”

Late last month Nokia held a session for analysts, “The future of 5G Core on hyperscalers and the journey to NaaS.” With the growth of telco spending on 5G cores (including transmission) this year, and Nokia’s repositioning towards more collaboration with the webscale (aka hyperscale) sector, this was an enlightening session.

As background, Nokia is ranked 3 in the global market for telco network infrastructure, and places second in the hardware & software segment of telco NI. The below figure illustrates Nokia’s telco NI revenues over the last few quarters and its share in the overall market, as well as the services and hardware/software segments.

Intel-Nokia 1

MTN Consulting’s summary of the Nokia session follows.

With the advent of 5G, CSPs (telcos) face challenges brought by multi-layered networks that run complex operations
“Seven degrees of freedom” are key for CSPs to achieve the full business value of 5G and embark on a journey to a Network-as-a-Service (NaaS) future
The seven degrees of freedom represent seven key design principles that can be addressed by CSPs to achieve full freedom in creating value with 5G and transition to NaaS in the most flexible way. The chart below illustrates the seven degrees.

Intel-Nokia 2

The seven principles presented by Nokia consist of the following:
- Cloud-native foundation: Inconsistent or limited implementations of cloud-native real-time applications will restrict a CSP’s ability to achieve a true 5G network that can take full advantage of the cloud’s agility, scaling and efficiency. Software vendors must develop the right disciplines of cloud-native design across the full span of 5G applications, and consistent methodology is key for simplification.
- Freedom of “any cloud” platform: CSPs gain flexibility by being able to use any platform for cloud and NaaS. The challenge is to ensure multiple vendors’ telco applications can readily use cloud vendors’ Containers-as-a-Service (CaaS) and Platform-as-a-Service (PaaS) capabilities.
- Openness of networks and ecosystems: Service-oriented architectures (SOAs) have existed in the webscale world for 15+ years, yet telco applications struggle to fully embrace the SOA approach. It is essential for a CSP to build a norm of using open networks and ecosystems in their organization. Strong API design in secure and non-secure environments is the basis for uniform exposure that enables the creation of 5G services and simplified operations.
- Cross-domain automation: Cloud-native designs increase complexity at the application and sub-domain levels. Also, when automation overlaps with a hybrid private/public cloud strategy, real-time application complexity and lifecycle management needs are enormous compared to a simple web application. There is a need for careful software design for highly complex lifecycle interdependencies.
- Service intent orchestration: Service intent-driven network orchestration is vital for the design of 5G slicing and agile 5G vertical services. This requires service demand to be attached to a QoS and SLA metric across the network. Core, radio and routing must be tightly connected to deliver the required SLAs and QoS. The orchestration and assurance of these designs is complex.
- Build a continuous delivery framework: CSPs work with multiple vendors that feed software into their extensive landscape of network and operations. Legacy process models cannot support a continuous feed of new software releases being introduced more often. The software delivery pipeline must be mature enough to handle multi-vendor environments, and it must be secure and consistent in both building and testing frameworks. All integration points must be automated and secure.
- Design for security: Security is an ever-present and ever-growing challenge. Threat analysis, vulnerability management and software validation are essential considerations when designing and delivering applications. Applications must be built with a “design for security” practice, including a detailed security risk assessment. Security must be end-to-end and continuous across applications, endpoints, management access points and APIs.

Nokia’s lessons learned from deploying with hyperscalers
- Aggregation required across ISVs as cloud providers have their own continuous integration (CI) / continuous delivery (CD) pipeline and lifecycle management tools
- Alignment required between cloud provider’s CI/CD pipeline and ISV’s repository
- VLAN-based network separation not possible in user-plane network functions

Nokia’s key “Any Cloud” achievements:

Intel-Nokia 3

Intel: “Network and Edge Update”

Intel’s role in telco network infrastructure is often overlooked. It sells to OEMs but over the last 3 years has developed a growing set of direct customer relationships with telcos. This session provided an update on Intel’s “network and edge” offerings with a focus on 5G.

As background, Intel is ranked 9 in the global market for telco network infrastructure, with an annualized market share of just under 3%. That counts all Intel telco revenues as if they were direct to telco arrangements. The below figure illustrates Intel’s telco NI revenues over the last few quarters and its share in the overall market, as well as the services and hardware/software segments. Intel doesn’t record any services revenues in telco NI, hence its share of HW/SW is higher than overall.

Intel-Nokia 4

MTN Consulting’s summary of the Intel session follows.

Intel showcased new silicon and software platforms comprising processors, accelerators, Ethernet adaptors, memory, software toolkits – all aimed at the goal of strengthening its position in vRAN and 5G wireless network technologies at the edge.
According to Intel, operators of 5G networks want a more agile, flexible infrastructure to unleash the full possibilities of 5G and edge as they address increased network demands from more connected devices. At the same time, global digitalization is creating new opportunities to use the potential of 5G, edge, artificial intelligence (AI), and cloud to reshape industries ranging from manufacturing to retail, health care, education, and more.
According to Intel, experts expect 75% of data will be created outside of the datacenter by 2023 — at the edge in factories, hospitals, retail stores, and across cities.
Intel wants to target the market where various capabilities can be converged at the edge, such as AI, analytics, media, and networking.
A select list of the “Powered by Intel” network deployments, as presented in the session:

Intel-Nokia 5

Reliance Jio, Deutsche Telekom, and Dish Wireless are transforming their networks on Intel’s architecture. The vRAN promises cloud-like agility and automation capabilities that can help optimize RAN performance and ultimately improve the experience for users. The company claimed that “Nearly all commercial vRAN deployments are running on Intel technology”
Intel is expanding its family of Agilex FPGA by adding a new FPGA with integrated cryptography acceleration that can support MACSec in 5G applications. This adds another layer of security to vRAN at the fronthaul, midhaul, and backhaul levels.
The chipmaker also unveiled Intel Network Platform – a technology foundation that (Intel says) can reduce development complexity, accelerate time to market and help to ensure customers and partners can take advantage of the features in Intel hardware, from core to access to edge. INP incorporates building blocks, a reference architecture and experience kits, and can support a range of different network solutions including vRAN but also other (non-5G) applications like vCMTS.

Intel-Nokia 6

Intel also announced a new commercial software, Intel Smart Edge, focused on enterprise on-premise use cases, such as private networks and universal Customer Premise equipment.
Intel’s Ethernet 800 Series family is expanding, with Intel’s SyncE capable Ethernet Adapter that is designed for space-constrained systems on the edge. It is well-suited for both high-bandwidth 4G and 5G RAN as well as other time- and latency-sensitive applications in sectors such as industrial, financial and energy.

Organic revenue growth continues to be a stretch for telcos in 1Q21

Posted on 12/05/2021 | 19/07/2022 by Arun

Organic revenue growth continues to be a stretch for telcos in 1Q21

Two weeks ago, we provided a preliminary view on revenue trends based on the first 13 significant telcos to report 1Q21 earnings. In it, we noted that revenue growth rates appeared promising for 11 of these 13, as the YoY % change in 1Q21 was improved relative to 4Q20. However, we also flagged a trend of concern, namely, that much of the apparent telco revenue growth was coming from sales of equipment (e.g. handsets) rather than core services. This has been happening on the mobile side with new 5G device sales, and also with cable companies catering to the work from home crowd. A survey of 25 additional telcos which have reported since our last newsletter confirms this trend. Telcos are still not persuading investors that the new services they are investing heavily to develop will lead to significant top-line growth.

Revenue trends in 1Q21 – the latest 25 reporters

The figure below illustrates the difference in the YoY revenue growth rate achieved for the group of 25, comparing 1Q21/1Q20 to 4Q20/4Q19. As shown, 18 of the 25 improved their YoY revenue trend line at least a bit between 4Q20 and 1Q21.

YoY revenue growth in 1Q21 for telcos, v2

Thailand’s biggest telco, AIS, had the best result of the 25 due to aggressive investments in both 5G and consumer fiber broadband completed in 2020. Its 4Q20 revenues declined by 7% YoY, while 1Q21 revenues grew by 7%, netting a positive 14%. Liberty Global grew by double digits as well, but that’s almost entirely due to recent acquisitions (of Sunrise, and Vodafone properties).

The worst performer of the group was Dish Network, but this is misleading as the company is ramping up a new service so growth rates will inevitably decline over time. Telenor had the second worst result of the group, for more substantive reasons: its Myanmar operations have collapsed amidst political unrest, and its Thailand arm DTAC is running behind rivals True and AIS in 5G rollouts. To compensate, DTAC is now accelerating a 5G rollout based on 700MHz spectrum, and Telenor is attempting to gain scale in another regional market, Malaysia, by merging its local operations with Axiata. At the corporate level, Telenor continues its long-running efforts to optimize its operational cost base: it claims a 7% company-wide decline in opex for 1Q21.

For the largest companies in the group of 25 – Comcast (#6 globally by revenues as of 3Q20), Charter (#13), KT (#17), and BCE (#19) – BCE and KT made the biggest gains between 4Q20 and 1Q21. However, as noted below one-time sales of equipment were a major factor for both. It was also a major factor for AIS, in fact.

The table below provides a summary of total revenue growth in 1Q21 for a subset of the 25, and the growth reported in non-service (equipment) revenues for the same time period. As shown below, equipment revenue growth outpaced the total company trend line for nearly every telco, in some cases by huge margins (e.g. Dish, AIS, Global Telecom, Etisalat). SKT was the only exception, as its corporate revenues climbed by 7.4% in 1Q21, while the non-consolidated “others” category of sales (which includes handsets) grew by just 3.8%. Not unrelatedly, SKT is planning to spin off part of its operations in the near future, in particular the parts growing faster than its telco core.

rev v eqpt rev 1q21 next 25

Only 17 of the 25 are included above because the rest do not report equipment revenues, as they (generally) lease CPE to customers and capitalize the gear onto their balance sheets. That’s true for Cable ONE, Charter, Cincinnati Bell, Cogeco, Comcast, Consolidated, and Liberty Global; the 8th of this group is Turk Telekom, which does not publish its non-service (equipment) revenue figures for other reasons.

Capex trends – changes in capital intensity due to 5G, fiber, and transformation

Much of MTN Consulting’s research is concerned with network spending trends, so we track capex closely each quarter. We are projecting a slight uptick in telco capex (in US$) for 2021. Based on early stats for 1Q21, this scenario is still likely. There are a number of sizable companies reporting capital intensity (capex/revenue) ratios higher for 1Q21 than 1Q20, for instance. This alone is not a great benchmark, as some telcos were forced to cut back capex in 1Q20 as the COVID-19 pandemic began to spread. Nonetheless, telcos aren’t shying away from modest capex investments in their network in order to improve operational efficiency (e.g. digital transformation, automation) and support a new generation of services on new 5G networks and FTTH.

The table below presents single quarter capital intensity for 1Q21, the change from 1Q20, and the drivers for that change. Not all 25 telcos are shown below; this table includes only telcos which reported capital intensity either >2.0% higher or lower for 1Q21 than the prior year period, 1Q20. Companies are listed according to their relative in capital intensity across these two periods, high to low.

biggest capint swings in 1q12 to date

Who will capture 5G’s value?

As we noted in our last research, many telcos deploying 5G are seeing a revenue uptick related to sales of 5G-capable devices. This also happened with 4G. Looking back, device and app companies captured much of the revenue upside related to deployment of 4G networks. This is a risk with 5G as well. As telcos deploy stand-alone 5G networks and rollout some of the more sophisticated functionality that comes with 5G, they will need to stay focused on deploying new services that deliver them growth. That will not be easy, and will require collaboration with both their vendors and the adjacent webscale sector of operators.

Device revenues are driving a growth uptick for telcos in 1Q21

Posted on 29/04/2021 | 19/07/2022 by Arun

Device revenues are driving a growth uptick for telcos in 1Q21

As of April 28, 13 of the 138 telecom operators (telcos) we cover in our quarterly tracker have reported 1Q21 earnings. Revenues for the early reporters have been surprisingly strong: all but 2 of the 13 have reported YoY revenue growth rates greater than the 4Q20 vs. 4Q19 result. This comes with a big caveat, however. Nearly all of the 13 owe their relative success to growth in equipment or device revenues, not to their core operations/services. For instance, 1Q21 device revenues climbed by 218% and 45% for China Telecom and AT&T, respectively. Not surprisingly, revenues for key handset suppliers are surging: Apple’s iPhone product revenues grew by 17.1% YoY in 1Q21 to $65.6B, while Samsung mobile device revenues were up 13.0% YoY in 1Q21 to 25.82 trillion Won (~$23.2B). Huawei is down but that is a company-specific situation, and early signs are that other Chinese handset suppliers (e.g. Oppo, Vivo, Xiaomi) did quite well in 1Q21.

On the network investment side, only 10 of the 13 reported capex for 1Q21, as the three Chinese companies in the group report capex only every 6 months. MTN Consulting expects telco capex to grow roughly 4% in 2021, but there is no obvious pattern of growth yet based on these 10 telcos’ reports. Du and Tele2 reported 52%, and 36% YoY growth, respectively, but most of the larger telcos in the group of 10 reported YoY capex declines. Orange was an exception, as it reported 3.1% YoY growth in capex for the first quarter, due both to fiber builds in rural France and international markets as to 5G.

Revenue trends in 1Q21

As the figure below illustrates, total revenues increased on a YoY basis in 1Q21 for 8 of the 13 companies reporting to date. That’s promising given that 2020 revenues for the global telecom market declined by about 1%. Further, there were a number of significant improvements in growth between 4Q20 and 1Q21, for instance China Unicom’s acceleration from 6.9% YoY growth to 11.4%. Growth flipped from negative to positive for Verizon, AT&T and Rogers. One factor is a pickup in economic activity in many global markets as COVID-19 vaccines started their rollout and government stimulus programs took effect. The more important factor is the 4G to 5G transition.

telco rev change prelim 1Q21

Most of the telcos reporting above operate in markets where that transition has already started: China, USA, Finland, Canada, France, Sweden, and the UAE. America Movil is an exception, as 5G is still emerging in most of its markets. Altice USA is the other exception as its mobile business is tiny and based on an MVNO with T-Mobile. For all others, though, device/equipment revenues related to 5G were the primary driver behind the YoY improvement in 1Q21 revenues:

China Telecom: Device revenues up 218% YoY
China Unicom: Device revenues up 51%
China Mobile: Device/other sales up 67%
Verizon: Wireless equipment revenues up 24%
Elisa: Devices up by 11%, and “Digital services” (including content/media) up a bit faster, +12%
AT&T: Mobility division’s equipment revenues up 45%
Rogers: Wireless equipment revenues up 27%
Orange: Equipment sales up 10% YoY
Tele2 AB: Equipment revenues up by 12% YoY, services declined by 1%
Telia: Equipment up 13% YoY
Du: equipment lumped into an “others” segment but company said that “Strong demand for the iPhone 12 fuel handset sales”

In their earnings, not all telcos addressed how much of their growth was attributable to one-time handset purchases that are mostly flow-through revenues. China Mobile was more direct, saying its 67% revenue growth in the sales of “products and others” was due to the the “buoyant growth of handset sales as 5G handsets were available with more varieties and at more affordable prices in the terminal market.”

Capex a mixed bag: 5 up, 5 down

Ten of the 13 telcos reporting have published capex figures for 1Q21. As the figure below shows, half reported YoY growth, half showed declines.

telco capex change prelim 1Q21

For all but Altice, the 5G transition plays into the capex fluctuations of all these telcos – with the cost of spectrum an issue that often arises.

Du’s 52% growth in 1Q21 is due to capex spend “mainly on the core network as well as 5G roll-out and on improving mobile coverage and capacity.” Tele2 cites its rollout of nationwide 5G in Sweden, and Remote-PHY on the fixed side. Orange’s modest growth is due to a ramp-up in its core France market aimed at getting Paris ready for its March 5G launch, as well as growing fiber investments in both rural France and overseas markets like Poland. Telia’s slight increase reflects a decline in fiber investments in Sweden offset by rising 5G costs as it builds out the network based on newly secured spectrum in both Sweden and Denmark. Elisa’s ~1% YoY increase is due to 4G capacity increases and expansion of its 5G coverage to reach 2.5 million people in Finland.

Among the capex decliners, America Movil’s dip is due in part to caution surrounding regional currency fluctuation and its December 2020 joint acquisition (with Telefonica and TIM) of Oi’s Brazil business. Moreover, America Movil is determined to implement 5G with minimum effect on capex: its CEO noted on AM’s 1Q21 earnings call that “I don’t think even for this year or for the next years, we [are] going to have an increase — substantial increase of CapEx for 5G.” Altice USA’s 29% dip is due mainly to a huge decline in CPE purchases, which flow into capex for Altice (as for most cable companies). Rogers also reduced capex in 1Q21, perhaps distracted by its huge pending acquisition of Shaw. Going forward, Rogers has committed publicly to major new investments in the network, in particular in rural and lower-income markets.

The two largest companies in the group of 10, by far, are AT&T and Verizon. Their capex outlays in 1Q21 were on the conservative side, falling 15% for Verizon and staying flat for AT&T (including its vendor financing payments). Their capital deployment focus in recent months has been spectrum: in the last two months, AT&T and Verizon have made payments of and $23 billion and $45 billion for C-Band spectrum, respectively, to the US FCC.

Both companies have a long way to go to build out nationwide 5G coverage and now face an energized T-Mobile post its acquisition of Sprint. That makes their recent splurges on new C-Band spectrum all the more notable. The high cost may cause some pullbacks on capex, or at least a more eager approach to partnerships that may reduce capex, for instance webscale collaborations (e.g. AT&T-Microsoft cloud connectivity, and Verizon-AWS 5G MEC).

Clearly AT&T and Verizon need to buy equipment and software to turn this new spectrum into a usable resource, but the high cost does constrain them on the capex side. Verizon addressed this indirectly in its earnings call, saying that it is “delighted that the credit rating agencies consider the spectrum asset purchases as strategic and critical to our business operations and held their rating levels unchanged.” It’s true that spectrum is a strategic asset, but the same can be said for fiber and data center and other types of infrastructure that compete for capital within a telco budget. Costly spectrum will continue to be an issue impacting US telcos. To the extent all US telcos face this reality, the main effect will be to slow deployments in lower ARPU areas and increase consumer prices, but also encourage adoption of products & architectures which aim to maximize use of scarce spectrum resources.

Who will capture 5G’s value?

Telcos deploying 5G are clearly seeing a revenue uptick related to sales of 5G-capable devices. This also happened with 4G. Looking back, device and app companies captured much of the revenue upside related to deployment of 4G networks. This is a risk with 5G as well. As telcos deploy stand-alone 5G networks and rollout some of the more sophisticated functionality that comes with 5G, they will need to stay focused on deploying new services that deliver them growth. That will not be easy, and will require collaboration with both their vendors and the adjacent webscale sector of operators.

Commercialization of 5G in Saudi Arabia

Posted on 07/01/2020 | 19/07/2022 by Matt Walker

The fifth generation of wireless technology (5G) is steadily growing in the Kingdom of Saudi Arabia (KSA). During 2019, all three operators launched 5G service and are continuously increasing its coverage. The next major step for KSA, which the world is watching closely, is the development of cost-effective and viable 5G in vertical industries such as oil and gas, marine navigation, and connected cars.

Recommendations

While KSA is an early leader in 5G, the following steps can be pursued to improve the commercialization of 5G in KSA:

Develop a long-term roadmap to shutdown 2G and 3G services.
Subsidize the cost of 5G devices.
Enable vertical markets for 5G in consultation with relevant stakeholders. Provide a near term deadline to shutdown 3G services

KSA Overview

Saudi Arabia, officially the Kingdom of Saudi Arabia, is the world’s 13th largest country by geographical area. The kingdom is bordered by Jordan and Iraq to the north, Kuwait to the northeast, Qatar, Bahrain, and the United Arab Emirates to the east, Oman to the southeast and Yemen to the south and it is separated from Egypt and Israel by the Gulf of Aqaba. It is the only nation with both a Red Sea coast and a Persian Gulf coast, and most of its terrain consists of arid desert, lowland and mountains (Figure 1).

Figure 1

Source: Nations Online Project

The Saudi economy is the largest in the Middle East and the 18th largest in the world. It also has one of the world’s youngest populations; about 40 percent of its 34.5 million people are under the age of 25. And, it also has one of the world’s highest immigrant population, about 30% of total. Immigrants account for around 70 per cent of the employed population and 80 per cent of the private sector workforce.

Telecom Market Overview

Government

The Ministry of Communications and Information Technology (MCIT) oversees all information and communication technology matters in the Kingdom. It sets up policies and supervises ICT activities to contribute towards the socio-economic development of the country and citizens.

The regulator, CITC (Communications and Information Technology Commission) is responsible for regulating the affairs of the ICT and postal sectors in the Kingdom. CITC aims to create a highly competitive environment, provide excellent services to subscribers, and establish an attractive ecosystem for investors. It is also responsible for issuing ICT licenses (telecommunications licenses; radio frequency licenses; numbering licenses; and equipment licenses) and monitoring license obligations.

Telecom Operators

STC, Mobily and Zain Saudi Arabia are the three long-established mobile network operators (MNOs) in the country. The state owned and incumbent operator STC founded in 1998 lost its monopoly to Mobily in 2004. Zain, newest to the market, started its operations in 2008.

The mobile telecom sector has more than 42 million subscribers led by STC followed by Mobily and Zain respectively. Virgin Mobile Saudi Arabia and Lebara Saudi Arabia operates as MVNOs in the Kingdom. They utilize the infrastructure and radio spectrum of the MNOs to provide services.

STC and GO Telecom are the two fixed telecommunication licensed entities in the Kingdom.

Infrastructure

Fiber Optic Networks

Fiber optic penetration is on the rise due to vigorous efforts of the government and the industry since 2017. According to the MCIT two million urban dwellings were covered with fiber optic networks (FTTx) at the end of fiscal year 2018, with 0.78M subscribers or nearly double the 2015 total. Overall subscription for fixed broadband service stood at 33.7% of for the same period. (Figure 2).

Figure 2

Source: MCIT 2018 Annual Report https://www.mcit.gov.sa/en/publications

Satellite Connectivity

KSA is a member of the 21 member-state Arab Satellite Communications Organization. ARABSAT is a satellite operator that provides broadcasting and telecommunication services across the Middle East, Africa and Europe. KSA has so far launched 16 low-earth orbit satellites.

Submarine Cable Connectivity

KSA is considered as an important hub for submarine networks in the Middle East region, along with the UAE, Oman and Qatar. As of now, there are 13 in-service submarine cable systems connecting the Kingdom to neighboring countries as well to other continents.

Spectrum

KSA’s three operators have been offering 2G, 3G and 4G using a variety of bands. 2G is primarily offered through 900 and 1800, 3G via 2100 while 4G is running on 1800, 2300 and 2600 MHz frequency bands.

5G in KSA

KSA is one of the early adopters of 5G in the Middle East. One key reason is the concentrated effort made by both government and industry in its development. For instance, during the initial period of 2018, the government established the National 5G Task Force to speed up the availability of 5G. It also increased regulatory certainty through the Unified License scheme and released a sizeable amount of spectrum. Furthermore, in February 2019, the MCIT released an additional 400 MHz in mid-band (3.5 GHz) spectrum, taking the combined spectrum available for mobile services, including 5G, to around 1,000 MHz.

Operators have been deploying 5G after successfully completing trials. Zain has so far launched commercial 5G services in 27 cities, STC is deploying 5G home broadband services in a number of cities while Mobily has signed a memorandum of understanding with Huawei for the development 5G in the Kingdom. Zain has also recently launched 5G roaming service between KSA and Kuwait.

Huawei, Nokia, Cisco and Ericsson are all important players in providing the required radio access and core infrastructure for KSA’s 5G rollouts. For instance, STC says that it has blended Huawei and Cisco core networks with Ericsson and Nokia radio access networks.

Key Challenges – 5G

The KSA’s key challenge is the commercialization aspect of 5G in conjunction with the heavy baggage of 2G, 3G and 4G networks.

The second, smaller hurdle – directly connected to the first one – is the availability of affordable 5G devices in the market. The current cost of a 5G device hovers around US$1,000 (~SAR 3,500). Close to 50% of the immigrant population is low-skilled and employed in low-paid jobs and thus are not eager to join the 5G bandwagon, at least in the near future.

The third hurdle will be the enablement of 5G in vertical markets. The list of stakeholders is long and complex. With many open as well as clandestine political agendas, it won’t be easy to come up with a solution. The concerned governmental agencies along with the corresponding industries (education, finance, health, maritime, telecommunication, tourism, transportation, etc.) will eventually face an uphill battle.

Recommendations

KSA is one of the richest countries of the world with a GDP per capita of over $23K at the end of 2018. The IMF expects the KSA economy to decrease by 0.2% in 2019 and grow by the same amount on average per year through 2024. In the telecom sector, the state-controlled structure has landed the operators in a reasonable financial state. With little possibility of any structural change and enough spectrum for 5G, the existing operators as compared to many other markets have few things to worry about, at least in the near term.

At the same time, to further streamline the process of effective and meaningful commercialization of 5G, the following steps can be considered by the government and the industry:

2G and 3G Services Shutdown: A long-term roadmap is needed to shutdown 2G and 3G services. 4G has been available since 2011, and 5G’s penetration throughout the kingdom will grow significantly in coming years. Thus it is prudent to have an effective plan to shut down 2G and 3G networks. At the same time the immigrant population (particularly the low-paid and /or low-skilled segment) has a high tendency to save money for families in their home countries. Thus they prefer cheaper 2G/3G phones over more tech-savvy and high-end devices. Regulators and operators should jointly consider developing a detailed roadmap for the discontinuation of 2G/3G services. It will free up capacity, reduce the number of network elements, reduce carbon footprint, reduce operators’ annual license costs, and allow spectrum to be returned to the regulator or to be reused for 5G if possible. In a nutshell, it will improve networks’ quality of service and the overall financial health of operators. Transition issues such as QoS (quality of service) degradation and vendor contract renegotiation are manageable.

5G Device Cost: Operators may further increase their due diligence with the device suppliers to lower the cost of 5G devices to attract the low-paid immigrant population. The current cost of a 5G device in KSA hovers around US$1,000 as compared to $10-$30 for 2G/3G phones.

Vertical Markets: The success of 5G to a large extent depends on its enablement in vertical industries. An effective roadmap is needed to strengthen 5G in IoT (Internet of Things), AI (Artificial Intelligence), and V2X (vehicle to everything – connected cars) markets.

– end –

Source of feature image: Kemo Sahab (location: Al Bahah, Saudi Arabia)

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Other sources:
https://www.worldometers.info/world-population/saudi-arabia-population/
http://worldpopulationreview.com/countries/largest-countries-in-the-world/
https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html
http://theconversation.com/which-countries-have-the-most-immigrants-113074
http://gulfmigration.org/media/pubs/exno/GLMM_EN_2018_05.pdf
http://www.mondaq.com/saudiarabia/x/532718/Telecommunications+Mobile+Cable+Communications/Telecoms+In+The+Kingdom+Of+Saudi+Arabia+An+Overview
https://www.mcit.gov.sa/en/page/98877
https://www.citc.gov.sa/en/AboutUs/AreasOfwork/Pages/default.aspx
https://www.tamimi.com/law-update-articles/an-overview-of-telecoms-licensing-in-saudi-arabia/
https://www.thenational.ae/world/mena/saudi-arabia-launches-new-communication-satellite-1.822624
https://www.submarinenetworks.com/en/stations/asia/cable-landing-stations-in-saudi-arabia
https://www.gsmarena.com/network-bands.php3?sCountry=SAUDI+ARABIA
https://knoema.com/pjeqzh/gdp-per-capita-by-country-statistics-from-imf-1980-2024?country=Saudi%20Arabia
https://www.gsma.com/r/mobileeconomy/mena/
https://www.commsupdate.com/lists/country/saudi-arabia/
https://www.telecompaper.com/international/news/all/saudi-arabia
https://www.telecomreview.com/index.php/articles/reports-and-coverage/3173-four-global-vendors-are-laying-the-foundation-for-5g-in-ksa
https://saudi.souq.com/sa-en/kgtel-k80-black-dual-sim-black-32822535/i/

Tag: 5G

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