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Telecoms operators need to defend their core connectivity role

Tom Rebbeck Research Director, Enterprise and IoT

"Established operators should not ignore their core connectivity role. The emergence of LPWA networks in the past year has been an extremely hot topic, and an area that telecoms operators are in danger of losing to new, more energetic startups."

Connectivity is and is likely to remain central to telecoms operators' digital economy efforts. Digital economy services can be used to defend existing connectivity revenues (e.g smart homes services being used to reduce broadband churn), to create new connectivity opportunities (e.g. connected car) and connectivity itself can be a base on which to develop other revenue generating opportunities (e.g. telehealth). Without connectivity, telecoms operators will find it much harder to justify their role. However, with the emergence of new networks using unlicensed spectrum (e.g. SIGFOX, Ingenu), established players are seeing their position under threat.

As can be seen below in Figure 1, IoT and other digital economy services will need a range of wide area connectivity solutions to meet different use cases. At one extreme, smartphones, connected cars and other services will require ever higher bandwidths. The position of established operators here seems secure as barriers to entry are so high – new entrants would need to invest billions of dollars in networks and spectrum to compete. At the other extreme, we are seeing many emerging use cases for smart city and other IoT applications that only require low throughput and no guaranteed service levels. Barriers to entry are far lower – networks need fewer base stations and use unlicensed spectrum. In between, demand exists for services that require some level of service quality and higher (but not high) throughput. As with the higher speed services, there are no immediate threats to established operators in providing these services.

Figure 1: Mapping of use cases and network technologies [Source: Analysys Mason, 2015]

Mapping of use cases and network technologies

This need for multiple networks creates challenges for established telecoms operators as it represents a break from the existing evolution path of mobile technologies (that is, the progression through 2G, 3G and 4G). Rather than focus on ever higher speeds, the new devices need a new trade-off between bandwidth, battery life and propagation. For an industry fixated by the needs of the handset since its creation, this will require an adjustment in thinking.

The second, and potentially greater challenge for established operators is the threat from new entrant operators. While many established operators have been slow to enter this market, smaller and more agile start-up companies, such as SIGFOX (France) and Telensa (UK) have been building networks and gaining customers. The outcome for this market remains uncertain and it is difficult to say how this market will develop.

Below, in Figure 2, we outline what we see as the main potential scenarios for these LPWA networks. As can be seen, we believe that the most likely outcome is that the traditional model, with established operators using licenced spectrum, prevails. However, and this is the key point, unlike for 4G, where the role of the traditional players was not under question, there remains a substantial possibility that other players and other spectrum options will emerge dominant.

Figure 2: Potential scenarios for LPWA networks1 [Source: Analysys Mason, 2015]

Scenario

 

Description

 

Drivers for this scenario

 

Barriers to this scenario

 

Likelihood

Fragmentation

 

  • No technology standard gains primacy
  • Multiple standards coexist

 

  • Continuation of current situation

 

  • Use cases that require scale would not emerge

 

Low

Startups win

 

  • One or two emerging companies like Ingenu, SIGFOX dominate the market

 

  • Startups are focused and aggressively chasing this opportunity
  • Startups are already advanced on established operators

 

  • Startups lack the resources and routes to market of established operators

 

Low

Established operators with unlicensed spectrum win

 

  • Established telecoms operators use technology such as LoRa to develop networks

 

  • LoRa gaining traction with established operators
  • Ecosystems around unlicensed spectrum are developing fast

 

  • Unlicensed spectrum may not be suitable to all use cases

 

Medium

NB-IoT dominates

 

  • Established operators using licenced spectrum control this market

 

  • Strong support from traditional vendors
  • Support from some major operators (e.g. Vodafone)

 

  • Late to market. Other solutions will have at least a year’s head start

 

Medium-High. Probably the most likely scenario in the longer term

The digital economy presents many interesting and exciting opportunities for the telecoms sector.  However, just as new technologies will disrupt other sectors the telecoms sector itself risks disruption if it is not able to defend its core service, connectivity.


1 These scenarios are a simplification. We would expect to see some elements of each of the scenarios emerging. For example, if NB-IoT does dominate, then there will be some fragmentation as existing networks may use LoRa or a proprietary standard.