Research Notes

Mobile World Congress 2017 – a Preview by John Strand, Strand Consult

Each year Strand Consult previews the Mobile World Congress. MWC 2017 is guaranteed to be the biggest gadget and services extravaganza in the event’s more than 20-year history. That being said, MWC has been clinically cleansed of bad news and negative stories of the many political, economic, and regulatory challenges mobile operators face every day around the world – challenges that have a detrimental impact on operators’ finances.

GSMA, the organization which runs the show, has created an event to stimulate all kinds of hype. But when I look at the program and ask the question “Will these things stimulate operators’ revenue?”, the quick answer is no.

There is no doubt that MWC is a unique event in Barcelona which attracts over 100,000 people.  GSMA has grown considerably from a memorandum of understanding signed in Copenhagen by 7 mobile operators in September 1987, agreeing to the digital cellular standard GSM. Thereafter the GSM World Congress held its annual event in Cannes until 2006 until it moved to Barcelona’s Fiera Montjuïc,  an exhibition center built for the 1929 International Exhibition. It was not long before the mainline MWC needed to move to a new space, the Fira Gran Via. Now the Four Years From Now (4YFN) program for start-ups takes the greater part of Montjuïc.  

In practice the Mobile World Congress is not one event in one location but one event in two different locations. MWC represents the old guard of the mobile industry while 4YFN has the upstarts.  At MWC there are a lot of old men talking about how they see future whereas at 4YFN the speakers are already creating the future.

Personally, I am impressed that the GSMA has succeeded to make such a financially successful event. It makes so much money from the conference that it is effectively independent of its members’ dues, and it is no longer effective as organization which can communicate to the political system or the public on behalf of mobile operators.  It’s time that GSMA spin off the event and focus a reinvigorated team on the public affairs challenges of mobile operators and renew its commitment to its members to get results.

To put the decline into perspective, consider that the EU once boasted about being home to the world’s leading mobile phone manufacturers, driving one third of the world’s telecom investment, and fostering many powerhouse mobile operators.  Those achievements have long faded. Today the EU grandstands that its latest regulatory gambit (roaming, net neutrality, free wifi etc) will create investment and innovation, but the numbers out of the EU have not looked good for a decade.

The MWC program has a list of keynote speakers you’ve heard before, a list that should be called “The Safe Choice.” When a speaker does provide an extraordinary experience, it is a pleasant surprise. Here are some of the top speakers and what they are likely to say.

  • Mats Granrud, Director General of GSMA, will probably describe the industry, its turnover and investment. Don’t expect him to be bold and call out the EU for its disastrous telecom policy.
  • Masayoshi Son, Founder, Chairman & CEO of SoftBank is generally entertaining, a Korean-Japanese speaker who masters not only English but international humor. He will talk about the need for consolidation and his dream of beating T-Mobile USA with Sprint. He probably won’t mention that Sprint didn’t live up to the expectations he created with the transformation of Vodafone in Japan.
  • Reed Hastings, CEO of Netflix, will put on a friendly face to the industry he usually maligns. He will boast about his company, all the money it invests in content, and its 100 million customers.  He won’t admit the shameless tactics his company employs to lobby and advocate for preferred regulation in some 200 countries, effectively driving its distribution costs to zero. GSMA could learn a lot from Netflix’s success to leverage the press and public opinion.
  • Stéphane Richard, CEO of Orange, is not afraid to call out the hype, though he will likely say that his company is “playing” with all the new technologies. He can be frank in his critique about the bad policies of the EU, but he is unlikely to admit just how much bad regulation has cost his shareholders and that investing in his international competitors provides more return. 
  • Michael Fries, CEO of Liberty Global, will talk about cable operators’ advantages to own their type of infrastructure. He will tell you that they will increasingly focus on broadband and unique content and that they will enter into partnerships with mobile operators or acquire them so that they can become quadruple play providers. I do not think he will talk about the differences in the valuations of cable and mobile operators and the long term effects on the share price going forward, Andrus Ansip, Vice President of the EU, will likely say the same things he has before on  broadband, roaming, 5G, and consumer protection. He will tell you, yet again, that the EU has a target to become the world’s leading digital economy, a goal that the EU has not only failed to reach, but continues to fall behind other regions. He won’t tell you that the real boss is EU’s competition commissioner Margrethe Vestager or that the industry is not going to make the investments necessary to achieve the 2025 EU goals.
  • Andrus Ansip, Vice President of the EU, will likely say the same things he has before on  broadband, roaming, 5G, and consumer protection. He will tell you, yet again, that the EU has a target to become the world’s leading digital economy, a goal that the EU has not only failed to reach, but continues to fall behind other regions. He won’t tell you that the real boss is EU’s competition commissioner Margrethe Vestager or that the industry is not going to make the investments necessary to achieve the 2025 EU goals.
  • Ajit Pai, the new Chairman of FCC, will likely be one of the few, it not the only, person to say something courageous. Pai is a man who believes in free market forces and technological developments to stimulate competition, investment and innovation. He is a powerful voice as a regulator who describes how regulation can be detrimental, and he has the courage to change policy so that it works for competition and consumers. I hope that he will talk about what he experienced in the FCC the last three years and how he has learned not to run the agency from Tom Wheeler. Pai is already helping the USA to get back on the path of winning again, and his chairmanship is single best piece of news for the mobile industry in 2017.

The speeches by Ansip and Pai are the ones I look most forward to hearing. After listening, you will be able ask yourself which region of the world is the more attractive for investment, the US or the EU? Strand Consult has analyzed this in detail, and our conclusion is that the EU continues to fall behind. The US has a significantly higher level of investment and more innovation than the EU. The US situation will further improve with the promised tax and regulatory reforms from the new Presidential administration. We described this in our conference call with financial analysts last week.

Maybe the regulatory matchup of the charismatic Pai and the robotic Ansip will inspire Richard and Fries to add some excitement to the show.  Let’s hope we can have a debate and some answers about where it is more attractive to invest in future, the EU or US.

You can bet that many politicians and regulators from around the world will be asking themselves that question as they see changes in the US. They must ask themselves whether they believe in the American model of permissionless innovation or whether the European model that more regulation and political interference stimulates innovation and investment. Strand Consult’s research documents that the US model is more attractive and gives better results compared to the EU.

This year’s program looks like an enlarged version of what we saw last year with even more hype. There is ample opportunity to hear visions wrapped in sales pitches so bald that they will make you miss John Chambers’ ability to evangelize the need for Cisco products. MWC is starting to look like CES, but CES has the advantage of being closer to Silicon Valley.

Like the shift of the mobile industry’s profits from the networks to the OTT providers, MWC has followed this in its lineup. It focuses on the many OTT services and services that run on top of the networks in which mobile operators invest and from which they increasingly sell flat rate packages. There is a lot of emphasis on shiny new gadgets, but very little in the way of business models for mobile operators. Companies such as Google, Facebook and Netflix have an interest in seeing that infrastructure investment continue. It’s regrettable that MWC does not have a serious discussion about the shrinking incentives for mobile operators to invest.

For insight to this issue, it is a good idea is to attend the Digital Regulation Forum in London on 28-29th March 2017, an event which attracts many investors from around the world.  

Also missing at MWC are serious and critical journalists who can relate to the political and regulatory challenges affecting private companies’ ability to invest and keen financial journalists who understand the complex value chain of the digital mobile economy.

Much of the coverage of the event focuses on the hype, including the EU’s idealistic messaging. Many media lack critical reflection on whether such dreams are realistic, not to mention the rigor of looking at the historical outcomes. The EU has devolved from being a beacon of technological leadership, risk-taking and investment. Today the region is more attractive for refugees than for investors.

It is not too late for GSMA to change its strategy. This does not mean it should abandon its desire to present an entertaining show. It just needs to add the substance that its members desire. Otherwise GSMA will essentially be an events company.  Mobile operators will then establish new organizations to safeguard their political, regulatory and economic interests. These challenges are described in Strand Consult’s predictions for 2017 as you can find here.

I could easily write much more about the challenges of the industry. Let us put the things on the shelf and enjoy the next week in Barcelona.  Let’s get inspired. Let us be seduced and then, just like after a good party, deal with the hangover. Just now the industry by making the same mistakes it made around 2000 with 3G auctions.  We hope for the best and fear the worst.

Strand Consult provides both pre and post review of the Mobile World Congress. Read our reviews from the past twelve years here.

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