|Strand Consult's predictions for 2015
Another exiting year has flown by and Christmas is here again. We would like to take this opportunity to wish you and yours a very Merry Christmas and a Happy New Year and to thank you for this past year.
Review of 2014
For Strand Consult 2014 was another exciting year. An increasing number of operators use our knowledge to achieve their business goals. We are pleased that our research contributes positively to the development of the industry that is the foundation of our modern way of life.
As a result of Strand Consult’s multi-stakeholder project, a quarter of the municipalities in Denmark reduced site rental prices for mobile masts and cellular towers by 70-80 percent. This means that Danish mobile operators save millions every year; more masts are erected more quickly, and Denmark continues to improve its mobile coverage.
In our predictions for 2014, we said it would be a regulatory “annus horribilis” for the telecom industry. We were right. 2014 was market by continued uncertainty, something not conducive for investors as they want to know which policies will be implemented and how. Additionally politicians made many “feel good and look good” statements without making effective policies.
In 2014 in the EU we said goodbye to Neelie Kroes as Commissioner for the Digital Agenda and hello to Ansip, Katainen and Oettinger. Upon leaving, Kroes remarked that her job was so important that three men are needed to replace her. It’s more likely that three men are needed to clean up after her.
There is no doubt about that Kroes had the best intentions we she started, but the European telecom industry has evolved disastrously during in her five year term. Her key achievement, the "roam like home" package, was dead on arrival. Strand Consult exposed that the plan created dangerous arbitrage opportunies. On net neutrality, Kroes compromised her original fact-based position to placate the populist net neutrality lobby and ending up not pleasing anyone. Upon leaving, Kroes admitted that she was not aggressive in deregulation of the telecom industry, the rules that hold the industry back from consolidating. By then it was too little, too late.
Meanwhile in the US, the debate for net neutrality took a turn for the worse when President Obama in a stroke of “feel good, look good” politics called on the FCC to classify broadband as a Title II service, essentially imposing utility style regulation on the Internet and violating the independence of the telecom regulator. The debate which was characterized by emotional pleas that the Internet will come to an end without regulation shifted into one of legal gymnastics, ensuring that telcos get the hammer while OTTs remain unregulated. It may be that an 11th hour legislation by Congress will circumvent FCC rulemaking. In any case, engineers, who have the most to say about how to be manage networks, long ago left the debate, leaving networks to be designed by lawyers.
Since 2002, Strand Consult has published predictions with links to each successive year. One should judge the fortune teller not on what he says about the future, but on whether he was right in the past. Strand Consult’s predictions have consistently proven true, and 2014 was no exception.
Predictions for 2015
Here are Strand Consult's predictions for 2015. Feel free to share. The exchange of ideas a vital element for the constructive controversy that drives the world forward.
Telecom regulation in the EU, USA and the rest of the world
While it is widely-recognized that regulation should be fact-based and regulators independent, the practice of regulation of the telecommunications industry is increasingly politicized. Various advocacy groups with expert use of digital tools exploit the regulatory process to prey upon the industry, supplying the media with fodder for gratuitous and sensational reporting.
The various regulatory debacles playing out across the globe show that operators are not always the best to handle their public affair work. In fact the telecoms industry’s attempt to create an even playing field with over the top (OTT) providers is a failure. Consider how the taxi industry in many countries has been able to address the disruption posed by UBER and the success they have had to demonstrate to the political system the imbalance between their highly regulated and licensed industry versus a mobile app. The taxi and telecom industries are different, but the former has been more successful to get their message out.
There is a need for a regulation based on facts, not prejudice and emotions. Regrettably we don’t believe there will be a shift to use of evidence in 2015, but Strand Consult will continue to do its part to provide empirical research to the debate.
In 2014 a new European Commission took office in Brussels. We are optimistic that Commission President Jean-Claude Junker will focus more on tangible ways to improve the operating environmental for telecom companies, if only because investment in the EU has fallen for several consecutive years. It is imperative to implement a telecom policy that makes investors believe in the EU again and that stimulates investment.
If Congressional rulemaking does not come to pass in the US, we expect that FCC Chairman Tom Wheeler will make a net neutrality announcement at some point in the first quarter of 2015. One can speculate whether it will be hard, soft, or in between. Strand Consult believes that Wheeler will think outside the box and reinvent the debate by suggesting an alternative not yet on the table. There is no doubt that a tough announcement will result in years of litigation. We think the Chairman prefers results rather than creating jobs for lawyers.
Strand Consult predicts that an increasing number of totalitarian countries will use “net neutrality” as a way to implement rules that make it possible for political leaders to monitor their opponents. We recommend operators to read the research note.
Broadband debate becomes dirtier and gets derailed.
Strand Consult predicts that activists will increasingly and unscrupulously play the human rights card when it comes to broadband and that they won’t take the time to familiarize themselves with the facts and certainly won't have respect for the economics of telecom networks. Further we expect rhetoric on government subsidies to derail the serious discussions on the digital divide and deploying broadband in rural areas. Whether activists win or lose on net neutrality, they will continue to pursue their long term goal to socialize broadband networks and turn them into dumb pipes.
The fact of the matter is that most countries don’t have the public money to invest in fiber to the premises networks for everyone, unless they want take money from projects that help the poor, old, sick, and uneducated. Moreover few countries have the geodemographic advantages of Japan, South Korea, and Singapore. But even if they do, the evidence that fiber networks alone add jobs and economic growth is lacking. Investment is the job for the private sector, and the only way to ensure networks is for governments to create environments that are conducive to investment.
2015 will bring continued focus on Google Fiber, not because it is a classic infrastructure provider but because the company has reinvented the regulatory process for itself by creating a competition in which communities compete in providing the most favorable conditions for Google. It is a sort of cherry picking in reverse in which those communities which can give Google the best deal will win.
2015 will also be the year where mobile broadband is finally accepted as an alternative to fixed line broadband in the developed world. Mobile broadband is growing a double digit rates globally, and we expect to see a number of developed countries exceed more than 10% of all broadband subscribers using mobile only solutions to connect to the internet.
OTT players will get what’s coming to them
What comes around, goes around. 2015 will be the year that OTT players such as Google, Facebook, and Netflix feel the regulatory hammer.
Google is the victim of its own success. It has dominant positions markets both vertically (search, online advertising, mobile operating system, browser etc) and horizontally (by combining and cross-subsidizing products such email, maps, analytics, docs, online video etc). Google will be the first OTT on the chopping block. A competition investigation against Google will make the Microsoft's bundled browser look quaint.
OTTs will have a hard time to justify the status quo when it comes to privacy, data portability, market share, competition, dominance, and taxation. Beginning in 2015 EU law requires that local sales tax prevails. This means that Netflix can no longer invoice from Luxembourg and collect only 3% in countries where the local sales tax is 25%. Netflix will have to collect the local sales tax in the countries its serves.
There is finally enough political support to begin to dismantle the tax havens that OTT players such as Google and Apple enjoy. It won’t be a matter that revenues can be shifted around countries. The expectation of political leaders is that total taxation on OTTs must increase.
Privacy is hot
Politicians love to talk about the opportunities of big data but the discussion inevitably turns to privacy. It’s impossible to separate the good and bad when the big data box is opened.
Governments face a dilemma in how to protect citizens from cybercrime and terrorism while ensuring their privacy. The challenge will create a lot of work for many people. In the meantime the vast majority of citizens will sit bewildered as they click yes to Facebook's lengthy terms and conditions, which they have not read and don’t understand. It would be nice if Facebook condensed the many pages and thousands of words into a "one pager" summarizing the user’s rights, but we don’t expect that in 2015.
Privacy will be a key issue in the viability of mobile services, not only in the privacy that we normally talk about but the many user details collected by mobile apps. It begs the question of which is the greater spy, organizations such as the NSA, CIA, and FBI - or the apps that we have on our phones.
2015 will be a year of consolidation - and it will go fast
The number of large telecom deals happened in 2014. As the year ends, we see Telenor merging with Telia in Denmark and the sale of Orange Switzerland. Expect more consolidation in 2015.
As operators pursue inevitable consolidation, we expect that they will demand more empirical justification from regulators, particularly when regulators attempt to impose remedies as conditions on M&A activity. Read our research note in which we examine the challenges of a consolidating market.
There is a lot of speculation on how to determine the “right number” of players in a market. We predict that when competition authorities reject TeliaSonera's acquisition of Tele2 in Norway in January, the debate will flare up. Furthermore we expect volatility in the stock market as very few operators will have good news to report. ETNO’s optimistic view of the market is naïve. Telecom is no longer a growth industry. Operators experience huge revenue losses as customers switch to cheaper products.
Network and network technologies will be exciting in 2015
The broadband debate will be seasoned with a discussion about future network technologies. The EU has an unrealistic dream that Europe can recapture the lead with 5G as it had with 2G and 3G. Talking about 5G when there is no standard is nonsense, but expect continued hype about 5G even though people can’t tell what it is or how it will be implemented. Read our Research Note about 4G and LTE.
On a more realistic note, we expect LTE on unlicensed spectrum to be the hot topic, particularly for cable TV providers with MVNO ambitions. Much will be said and written about LTE broadcast (eMBMS) and how the technology can either subsidize or supplement digital TV solutions. The question is whether mobile operators have a market position in the digital TV area and whether LTE broadcast is the technology that should drive the development.
There will be focus on the challenges that come with many new technologies and how to distribute spectrum. It will also be clear that net neutrality rules will be at odds with the requirements of intelligent networks. Strand Consult will continue to cover and inform this discussion. Long-term investments by the telecommunications sector will have a very difficult 2015, as political systems are short-sighted.
Mobile coverage and the challenges mobile operators face to deliver it will get attention in 2015. This past year we saw mobile operators come under attack from the press, citizens, politicians and regulators in many countries for poor mobile coverage. This is particularly the case in the UK where operators have been forced to take a bad deal from the government, requiring operators to deliver better coverage but without the proper framework.
If operators fail to inform the public about the challenges of mobile coverage, they can expect to be the victim of a number of crowdsourced mobile apps which attempt to measure the quality of networks. The issue will continue in Brazil, Germany, Spain and the United States and spread to other countries. Mobile coverage is one of the most expensive challenges for many operators. Shareholders suffer every day that operators fail to address this issue.
Strand Consult is an expert in this issue and we have created unique results in Denmark. See this research note.
Internet of Things and the M2M market
While the Internet of Things and the M2M markets will require many SIM cards, the traffic on each card is marginal to insignificant. Strand Consult is critical of the hype around these topics and their business models. As such, many operators will recognize that they don’t have the skill and cost structure to address these markets and will recognize that they are better handled by specialists that know how to add value to the traffic. 2015 will bring more focus on the value chain - where is the value is and who can add value to the market. We expect that operators will address this market through experienced partners who focus on this market and run a cost-effective organizations.
The market for mobile devices, smartphones and classic feature phones
The market for devices in 2015 will be dead boring. Innovation is limited, and the handset market is increasingly similar to the PC industry. Google is the big winner. We don’t expect big news beyond more technically advanced phones handling many network technologies.
We do not believe that Microsoft will have success in the mobile market in 2015. We are sorry for them. It’s possible that the bad karma came from Stephen Elop but more likely, Microsoft just can’t succeed at reinvention. It has tried several times over the past 15 years to come to life in the mobile market, but it remains the king of the market that is slowly migrating away from PCs toward smartphones and tablets. The assets which Microsoft bought from Nokia continue to fall, like sand through the fingers. If you look at the hardware market, the Chinese and the low cost device manufactures win - a market which is dominated by Google and the services it bundles into their Android operating system.
The market for services - mobile, mobile and mobile
2015 will be the year where we have increasingly come to see Internet development is driven by mobile, mobile, mobile, and mobile. We believe that 2015 will be the year where those who measure and analyze traffic on the Internet will talk about how mobile is changing the Internet.
Strand Consult hopes these predictions for 2015 give you some inspiration. It is our 14th year in making predictions and we try to inform, delight, and challenge our audience. We invite you to see for your yourself whether we have been right over the years.
Merry Christmas and Happy New Year.