Research Notes

2016 Predictions and Christmas Greetings

Another exiting year has flown by, and Christmas is here again. We would like to take this opportunity to thank you for the past year and wish you and yours a very Merry Christmas and a Happy New Year. This is our 15th year of making predictions. We invite you to see the past years.

Review of 2015
For Strand Consult 2015 was another exciting year, and we find that more and more operators use our knowledge to achieve their business goals. The combination of our knowledge with out of the box thinking helps operators navigate a turbulent world where political and regulatory hurdles increasing hinder the telecom industry’s ability to deliver results.

2015 was the year that the European telecom industry realized that the vision of EU Commission President Jean Claude Juncker Commission did not become reality. It was also the year when industry and investors realized that the EU has a schizophrenic telecommunications policy.

Despite Neelie Kroes’ observation that she was so important that it took three men to fill her role (Ansip, Oetinger and Katinen) in DG Connect, Margrethe Vestager shifted the Commission’s power to DG Comp. Strand Consult published this research note about the scuttled Telenor Telia merger in Denmark. Subsequent speeches by Ansip and Oettinger at the FT-ETNO event in Brussels confirmed that Vestager wears the pants at the Commission. While DG Connect may think they make the strategic direction for the telecom industry, DG Comp calls shots. Which mergers are approved and with what remedies are what determines the horizon for investment. Sadly, 2015 gave telecom investors little to cheers about in the EU.

Strand Consult’s multi-stakeholder project which helps to make it cheaper and easier to build mobile infrastructure is a success. In 2015 we were shortlisted for’s Mobile Award. Independent experts have documented our results and show that operators following our recommendations reduce their costs significantly. Our recommendations applied on a large scale would save the industry billions and help infrastructure suppliers sell more.

In our predictions for 2014, we said it would be a regulatory “annus horribilis” for the telecom industry. We were right. The year was marked by continued uncertainty, something not conducive for investors as they want to know which policies will be implemented and how. 2015 was not much different.

Shifting and unpredictable telecom policy which is not based on facts is unfortunately becoming more common. Increasingly policymakers do not understand the challenges the industry and that worries investors. Bad telecom policy ideas are spreading like a disease, and the industry’s trade organizations have not been successful in communicating clear and compelling messages.

Despite the fearmongering that the the US is falling behind in broadband and telecommunications, the success of T-Mobile and other players demonstrates that competition is working and there is no need for political intervention. We have described how John Leger wins by copying the strategy that T-Mobile Germany’s competitors used against it.

In 2014 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, hitherto unregulated, will come to an end without sweeping government intervention, shifted to one of whether the FCC could pull off the legal gymnastics of “ancillary authority” and agency deference”. The outcome of the oral arguments in the net neutrality case doesn’t bode well for the FCC, and a court reversal of the rules would be a blow to the Obama legacy. A new President in the US means a new ballgame for telecom, and it’s unlikely that the FCC will be able to pull off the same hat trick again. Time is running out for net neutrality advocates to coordinate with Congressional Democrats to making lasting net neutrality through legislative means, the way most Democratic countries do. That advocates prefer to go for broke and burn through public coffers with litigation to fight the issue at the Supreme Court, where net neutrality could be killed forever, speaks volumes about their money and recklessness.

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 2015 was no exception.

Predictions for 2016
Unfortunately we live in a world which too many dare not speak their opinions, and folklore takes the place of facts. Strand Consult sees things differently, and says what it believes, regardless of whether it’s popular or politically correct. Here are Strand Consult’s predictions for 2016. They are based in the experience we have built up over more than 20 years and the research that our team of experts creates. Feel free to share these predictions. The exchange of ideas drives constructive controversy that propels our world forward.

The market for mobile devices – 2016 will be an especially bad year for Microsoft
The market for mobile phones, especially smartphones, was no fun in 2016. It is a difficult market where the list of members of the Dead Poets Society gets longer. The club already counts Ericsson, Nokia, Motorola as members and the next candidates are BlackBerry, HTC, and Microsoft.

It is only Microsoft’s brand that keeps the its flagship phone alive. The company has greater challenges than they will admit, and in 2016 it will be hard to imagine them achieving a market position that brings them out of the niche category.

There are many similarities between the old Motorola and the Apple of today – releasing the essentially the same products and expecting the consumer to buy. It’s the strategy that caused the Razr to collapse in 2006/2007. In fairness, Apple has a large portfolio with a wide range of products integrated with an ecosystem of app development. This gives Apple an edge but does not make it immune from market challenges.

2016 will be tough year for device makers, even those who are successful today. The industry lacks a game changer, and it is hard to see where it will come from and how it will contribute.

Internet of Things reality arrives but is no goldmine for operators.
The Internet of Things (IoT) has been hyped for years. Having said so, we believe that 2016 will offer a wide range of new solutions connected to the Internet. Creating new combination of hardware and software is the classic way to add value. IoT will be visible, and consumers will recognize it, but it won’t necessarily translate into revenue on operators’ income statements. IoT connectivity is marginal for operators. This area will be exploited by integrators.

Mobile payment is here – Visa and Mastercard are the killer apps.
There are many who have a dream of success on the payment market. We predicted that mobile operators would never monetize this space, and we were right. Many mobile operators have withdrawn from the mobile payment market because they could not add value or make money. This also goes for the Internet players that attempt to enter the market.

The world of mobile payment belongs to the banks with Visa and Mastercard. 2016 will show that the value inherent in owning the account to which people get their salary – in combination with the retail banking/ATM network. Visa and Mastercard essentially own the consumer/merchant network, and only niche players can compete against their killer apps.

OTT vs Operators is dead- Partnerships will flourish, if not regulated out of existence.
For many years there has been a struggle between OTT players and telecom operators. But the two players need each other, and OTTs know it. Both sides will want to work together.

We expect that the number and type of services that operators bundle with voice, SMS and data will explode. Music services such as Spotify and Deezer; video services like HBO and Netflix; newspapers and magazines—any and all content that can bundled with traditional traffic packets that telecom companies sell will be bundled with mobile service for all devices.

Strong brands will play a role in partnerships. In the same way that toys, clothing and other consumer products enter partnerships with film companies, more brands and mobile service will come together. The challenge is to design business models that create win-win outcomes.

To be sure, net neutrality advocates are at the ready to conquer any mobile plan that a consumer would love, but we think 2016 will be the year when free services and cool brands trump neutrality. The religious strategies employed by net neutrality advocates will likely backfire. They insist on plain vanilla in a world where partnerships have many flavors.

Prices will fall – roaming and competition.
If you look at the mobile market, customers have primarily purchased voice, SMS and data which was often bundled with a subsidized phone. Over time the prices of basic products dropped, forcing the industry to cut costs and become more efficient.

There is a natural limit to how effective an industry can be. Cost cutting alone doesn’t deliver earnings. Operators need to think in new ways and create more differentiated products from the classic package of traffic and a telephone.

The EU’s roaming package was agreed in 2015. Thanks to Strand Consult’s exposure of the perverse SIM arbitrage opportunity the rules created, the appropriate fair use safeguard was put in place. We expect that mobile operators in many countries will focus on offering their customers access to superior roaming conditions with a special roaming package. For many operators, the sale of these packages could help shore up some of the revenue losses operators will suffer once free roaming takes effect.

We believe that roaming requirements will spread to other regions of the world where countries will hold the European Union as a reference and claim that roaming must be eliminated from a variety of countries in a larger or smaller region.

Developments in markets around the world will once again prove that regulators are wrong when they claim that it is the number of players in a market determines competition. 2016 will again demonstrate that technological developments drive competition. It takes just two men to start a fight in a bar, and two different network technologies can be credible competitors without regulation.

Spectrum auctions with extreme mobile coverage demands
To build and operate mobile networks may be something of a challenge. Strand Consult has over the years documented that the fastest growing OPEX for the mobile operator, the cost of renting the land to mobile masts. Put simply, our research shows that neither politicians nor regulators do much to help operators when it comes to providing citizens with good mobile coverage.

The year 2016 will in many countries show a negative trend, and growing political demands for better coverage and better quality in the networks will cost mobile operators money. The 2016 auctions will have high coverage requirements but there is no corresponding political support to eliminate the barriers on the ground. These barriers will eliminate opportunities for greenfield operators and make it very difficult and expensive for smaller operators to meet the new stringent coverage requirements.

Thanks to Strand Consult, Denmark has had a good experience when it comes to removing barriers and reducing rental costs. But operators around the world still suffer, and regulators don’t act on delivering this important benefit to society.

The year 2016 will show that government needs to takes responsibility when it comes to making it easier and cheaper to roll out new telecommunications infrastructure. The EU is working with a number of plans, but as usual their proposals are too little, too late.

It’s not surprising that when operators can’t meet coverage requirements because of local barriers (either rules against digging or erecting masts and towers) that regulators and advocates start saying that municipal broadband is needed to create competition. To say that a government provider (which does not pay taxes or have any of the conditions of a private provider) is a way to create competition in a free market is greatest canard ever foisted on the public.

2016 will see more national telecom policy becoming local, and operators need to adjust accordingly.

Regulation, regulation and regulation – The big nightmare for all parties.
Telecom regulation around the world looks like an employment project for bureaucrats. The more than 100 telecom regulatory authorities that emerged in the last generation to deregulate the national telephone monopoly face a moment of truth, whether to shutter their doors now that their work is done, or to reinvent themselves to regulate the Internet. Unfortunately too few regulators have the modesty to realize that market competition works better than they do, so in an effort of self-preservation they promote ever grander schemes of regulation. They will never pronounce the market competitive because they will be out of a job.

It would seem that regulators which are so gainfully employed could at least do one thing: assemble the facts. But this sorely is lacking. Whether merger review, spectrum allocation, universal service, licensing, or interconnection, the supposed independent telecom regulator is far too politicized. Sweeping regulation is implemented without a basic impact assessment or cost benefit analysis.

Strand Consult thought it had seen the apex of bad regulation when the FCC issued more than 300 pages of net neutrality rules based on theoretical harms and invented theories. But the EU went even further with its new data protection directive, the framework alone of which is 200 pages. The EU has managed to implement privacy regulation with greater speed, less analysis, and even greater unintended consequences than its net neutrality rules.

Strand Consult has covered the net neutrality debate around the world for some years and has published a number of research notes and reports on the topic. Whereas net neutrality rules put users at risk for higher prices and an indirect surveillance from the government, the EU’s privacy directive actually removes government and law enforcement from obligations to protect users’ privacy. The so-called consumer advocates have been unscrupulous, making a quid pro quo with lawmakers that double-downs on companies requirements to protect data but relieves government of responsibility. And on top of all of that, interest groups have legally enshrined themselves to act on behalf of users and receive the users’ compensation that comes from the cases they lodge against companies using the new rules. It is a legal racket for regulatory capture.

And in good EU fashion to time announcements with the holidays, just like releasing the roaming regulation before Europeans take their phones on summer vacation, the EU announced a requirement that companies appoint a Chief Privacy Officer just before Christmas. There could be no better holiday gift to the associations of privacy professionals.

Regulation has reached a new high, but we trust that the lawyers are paying attention. The US has the reputation for being a litigious country, but it’s also a country that makes a lot of stupid rules. American telecom investors expect that operators will protect their investments; that’s why they challenge bad regulation in court.

It appears that if the EU can’t produce companies that compete with the US, Brussels can unleash the regulatory state. If the newly minted European Data Protection Board doesn’t regulate companies down the drain, we will witness some exciting legal challenges in future. The bad news is that a lot of money will be spent on lawyers, not on innovation. We predict that not a single significant startup will come as a result of the EU’s rules. The privacy directive will—perversely—strengthen the existing players. Only a company with an army of lawyers and lobbyists can do battle with Brussels

We are sure that 2016 will experience a number of service providers denounce the increasing regulatory burden. We expect some high profile OTTs to rebel against net neutrality as well as some regulators. We will experience small service providers bringing attention to the complex and contradictory rules will limit their ability to compete against larger players with more resources. The year 2016 will be the year when it becomes very clear that privacy and net neutrality rules reduce competition in the global services market.

In 2016 we will see telecom operators take more leadership in transparency and exposing the hypocrisy of the state. They will do this through their transparency reports and this will grow into a way to name and shame governments for their duplicity.

The telecom industry’s biggest enemy is itself
One of the biggest challenges in the telecommunications world is that the operators in the telecom industry cannot get on the same page. Regulators use this to their advantage to exploit the divisions amongst different players. Trade associations should do a better job to communicate all the benefits that their members do for society, but they have not succeeded to craft the winning messages. As a result, politicians have used these rifts to create their own agenda which run counter to the goals of a health telecom market.

Two years ago we said that there was a need to GSMA reinvented itself. This still hasn’t happened. GSMA makes so much money from the Mobile World Congress that it doesn’t need to worry about its key members anymore. It has strayed from its core mission to focus on the needs of mobile operators to become a tent for any supplier in the mobile industry.

While growing revenue is good, losing touch with the mission means that the organization is less effective. That GSMA is next to invisible in the net neutrality debate and certainly ineffective should make operators rethink where they spend their policy budget. A number of operators will likely move the regulatory work away from the GSMA to a new organization, or take on more of the work themselves.

More focus on the too few women in telecom
2016 will bring more focus to the few women in chief positions in the telecommunications industry. It is not a secret that the telecommunications industry is male-dominated, but the different reasons for this are not related to discrimination but rather than women have not considered telecom careers.

There has been an ongoing debate in Norway about the few women in chief positions at Telenor and about the need for more women in chief positions, and that debate will likely globalize. It’s a constructive debate that makes participants focus on what makes the management team effective. In any event, the best candidates who happen to be women do not want preferential treatment because of their gender. They want to be recognized for their accomplishments.

We believe that the GSMA address this issue and use it to profile itself as a modern organization that is part of a modern industry that will give women career opportunities. It is not about giving women preferential treatment but rather about making the industry attractive to more skilled women.

Strand Consult hopes these predictions for 2016 give you some inspiration. It is our 15th year in making predictions, and we try two inform, delight, and challenge our audience. We invite you two see for yourself whether we have been right over the years.

Merry Christmas and Happy New Year.

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