Research Notes

Mobile World Congress 2021: A Preview by John Strand, Strand Consult

Today the Mobile World Congress (MWC) opens physically in Barcelona and online. Every year for the last 18 years, Strand Consult has published  previews of the Mobile World Congress (MWC). MWC started 34 years ago in Cannes as a nice little conference. Attendees would meet at the Hotel Majestic’s bar after each day’s events. The mobile industry has evolved since then too. Mobile phones and services were used by just a few; now they are accessed by almost every person on earth.  Until 2019, MWC was a gigantic event, attracting over 100,000 participants and 2400 exhibitors.

2020 became an annus horribilis for GSMA when it’s cash cow was hit by COVID and cancelled the event. MWC will likely change a lot this year. The question remains whether this unique event will be the place for buyers (mobile operators) and sellers (technology companies) to meet and create values which justify the large investments in attending. It will probably be a few years before this question is answered.

All the same, technology companies come from all over the world to Barcelona to meet decision makers in the telecoms industry. If fewer executives from mobile operators attend, the value of the event diminishes. Without the right strategy, MWC could go down the death spiral which has hit other industries which could not evolve in the face of the pandemic

The structure of this year’s MWC is identical to prior years, but the difference is that the event is now partially online, with attendees both online and in person. Managing these dual concepts will be the proof point for GSMA.

The conference speakers can be divided into the “usual suspects” and “flavor of the year”. There is a mix of industry regulars–the CEOs from the largest operators–peppered with rising stars like Danielle Royston of TelcoDR. Elon Musk will speak on his 50th birthday about his satellite broadband company Starlink.  They will bring the magic that the mobile industry used to get from speakers like Stéphane Richard from Orange, Nick Read from Vodafone and Timotheus Höttges from Deutsche Telekom. In the old days, the industry marketed water like it was wine; today they say mobile can turn water into wine. The mobile industry has never been more important than it is today; connectivity having been one saving grace of the pandemic. However, consumers consider connectivity like a commodity or utility. 

The 200 speeches will likely be sanitized marketing messages which have been pre-approved by corporate lawyers and diversity officers.  In this note, Strand Consult will outline the difficult things that mobile industry leaders should say but are afraid to. My old mentor Erik Toft called marketers, the salespeople who are afraid to get in touch with customers.  Marketers say things that sound good, but they don’t move products.

Financial acrobatics: The new black

A key trend in the telecom industry unlikely to be discussed is the coming fragmentation and separation of operators into infrastructure and service companies through a process Strand Consult calls “financial acrobatics”. To add or create value, operators pursue functional separation strategies with the hope that a new type of shareholder will buy the shares at a higher value than their current value. Operators are under pressure to create value at a time when the price of shares in other industries has skyrocketed

The best recent example of “financial acrobatics” is the tower market in which valuations have soared while operator revenues have been flat or declining for the last five years. There is no connection between what consumers spend on mobile services and the value of towers. Since 2015, operators across Europe have sold off their mobile towers or listed them in separate companies. This exercise that has not created any other value than that which occurs when parts of a mobile operator are reclassified in an infrastructure company.

About 30 percent of European tower are listed (Cellnex, Vantage and Inwit) on stock exchanges, and they represent €55 billion in market capitalization.  Between 2015 and 2021, European mobile operators have, by reclassifying their towers, added €165 billion in market cap, of which €55bn can be found on the European stock exchanges. Operators have earned a lot of money by separating and creating infrastructure as separate asset, which subsequently is used to pay dividends and pay down debts. 

If you look at the value of the European RAN market, European operators have over the last 3 years bought radio access network (RAN) equipment for €7.3 billion, about €2.4 billion annually. With value add from tower sales, operators have created enough values to cover their basic RAN costs for 68 years.

All telecommunications companies want to be green but how green are they in practice?

Operators will say that they will be green and expect the transition to be faster than expected. A few days ago, Vodafone announced that 100 percent of its European networks will be powered from renewable sources from 1 July 2021 and that their red corporate logo will be turned green to mark the shift. This kind of gimmick is tailor-made for MWC, heavy on style but light on substance. Vodafone is using mainly Guarantees of Origin (GOs) to achieve its green targets. See Strand Consult’s research note explaining how this market works and how to spot “greenwashing.

Climate is a growing public policy concern, and the telecom industry will play an increasing role in supporting green, sustainable energy solutions. Telecom operators can do this either by purchasing Guarantees of Origin (GOs) from their energy providers or by entering into power purchase agreements (PPAs) with companies that produce green energy. The PPA is a contract between two parties; one that generates electricity (the seller) and one that purchases electricity (the buyer). These contracts can be so large and significant that a green energy provider may build a new green energy plant for a single client or small group of clients who buy all or most of the energy produced. Locking in supply, price, and sustainable terms the goal with PPSs is to increase the production of green energy.

When purchasing mixed energy from the grid, many are under the illusion that they are addressing climate change when they are not. They are shuffling, not switching. The certificate system of GOs divides green power sold by a power producer into two separate products: electricity and environmental attributes (benefits). The physical electricity is sold as KWh, and the green attributes are sold as certificates.

GO certificates can be traded and re-traded electronically on the global market, like financial assets. A company pays a broker, and brokers pass some of the money the company that generated the green energy. In theory, this money should help get new energy built. However, the traded market prices are so low that the money is not enough to finance production of new green energy.

The bulk of Vodafone’s “green energy” comes from GOs, with only a small fraction being PPAs. In practical terms, Vodafone’s GO’s do not produce more green energy in the countries in which they operate networks. Vodafone may be the “King of Green Washing.”

OpenRAN, the next quantum leap?

MWC will have much focus OpenRAN. It will be part of the event targeted to the religious who want to experience a born-again revival. Many evangelists come from large operators; others are associated with smaller companies with a dream of getting government funding to develop their businesses and so they can subsequently make an exit through acquisition.

As with many religious statements, they can be difficult to fact-check, particularly as the audience is not so well educated to ask critical questions about this subject. For the skeptical, Strand Consult offers a list of 10 parameters on which to judge the evangelical statements on OpenRAN.

For example, ask the OpenRAN evangelists which services will be in the core network and which in the cloud; which services are based on RAN that require OpenRAN on a cell site to be implemented? Who will develop these OpenRAN-based services?  Who will sell them? What business models underlie these services. Is it for the corporate or consumer market?  Will these services only be available where the operators have implemented OpenRAN, e.g. outside the big cites?  How will the geographical limitations be overcome? Moreover, how will the solution proffered as the silver bullet to counter Chinese vendors work when 44 Chinese vendors are already part of the leading open radio access network alliance?

The hype for OpenRAN reminds Strand Consult about of the stories that GSMA told about OneAPI and RCS (rich communication services). These two latter solutions were supposed to counterbalance the lost revenue from the over the top (OTT) players. In case you missed it, that never happened. Internet players used better, cheaper products to overtake mobile operator services. As for OpenRAN, the most important competitive parameter in the mobile telecom industry today beside price is the quality of networks. It will take some time before OpenRAN‘s price and performance can match classic RAN.

All that tension with AI and IOT in the Cloud

MWC will focus on the 5G services opportunities with the Cloud, Internet of things (IOT) and (AI) artificial intelligence. While the 5G mobile operators are using today is 3GPP release 15. It will take release 16 and 17 to deliver a technology that is more advanced than 4G  around the world today.

While many online applications have experienced a surge in traffic during the COVID-19 pandemic, no party has fared better than the “Big Streamers”: Netflix, YouTube, Amazon Prime, Disney+, and Microsoft. While many industries have are nearly bankrupt, the Big Streamers have made achieved impressive, if not record-breaking, revenue, earnings, and users. However, the Big Streamers strain on networks in increasingly clear, as they do not pay for much of the infrastructure they use, notably the middle mile. There is increasing public policy discussion about getting these companies off the free ride and ponying up some contribution to the cost of networks, particularly as they have been talking a big game about “equity.”   

While new technologies will be trumpeted at MWC, there is too little focus on business models and how the value chain will evolve. We’re talking about the future where companies are increasingly separating infrastructure from services, that means enough that service providers are losing the competitive advantage they’ve had by owning spectrum and infrastructure.

Security and competition will be the industry’s biggest challenges

MWC 2021 rightly looks at security and its increasing importance. It’s too bad that GSMA did not invite some financial executives to speak about their compliance experience, as it would probably too scary for mobile operator shareholders. The biggest taboo in the European telecom industry is probably the cost of cybersecurity – just ask the banks 

MWC should put more energy into highlighting the value of consolidation. Indeed, operators are struggling worldwide to consolidate markets with regulators and competition authorities being pre-programed not to allow 4 to 3 mergers, even though they can’t prove that 4 firm markets are better than 3 to deliver price, quality, innovation, and output.  Because few regulators will do the work to crunch the numbers, Strand Consult has. It offers the definitive report on 4 to 3 mergers, reviewing hundreds of academic articles and empirical assessments of mobile mergers, dozens of case studies of 4 to 3 transactions from around the world, and 150 legal, antitrust, and regulatory proceeding.

Covid-19 has sped up processes

COVID-19 has changed the view of mobile network infrastructure, cloud, and AI. Instead of marketers who like to make glitzy announcements, GSMA should have invited some speakers to opine on the critical questions. While there are some exciting presentations, MWC does not acknowledge that the industry is in the midst of a paradigm shift. The operators which attended MWC 34 years are not the same as the one that attend today.

The financial acrobatics we are seeing right now are a result of mobile operators around the world not being able to translate the technological developments and new opportunities into increasing revenue and earnings. If we look at the 4G development and what happened with smartphones and apps, then it’s the OTT players like Facebook, Apple, Netflix, Google and Amazon which reaped the rewards of the mobile industry, not operators.

As usual, Strand Consult will publish pre and post reviews of the Mobile World Congress. Read reviews from the past seventeen years. It sends best wishes to attendees, both online and in person. Plus Happy 50th Birthday to Elon Musk.

Meet Strand Consult at Mobile World Congress

To meet with Strand Consult during the MWC, please email your contact details and the details/purpose of the meeting. Strand Consult will participate in MWC online as many of its mobile operator customers have chosen not to go to Barcelona. Journalists can contact Strand Consult 24/7/365.

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