Vodafone Archives - STL Partners
This report considers how telecommunications operators could play a deeper role in smart city projects, arguing that the multi-stakeholder and multidisciplinary nature of smart city strategies requires a high level of coordination. Some telecommunications operators may be able to play that role. That will bring the operator closer to the citizens, who, in turn, are also their customers. This new position could enable new business models for telecommunications operators.
With the aim of identifying how telecoms operators can evolve and deepen their reach into the smart cities vertical, this report explores the various forms of smart city governance used or that could be used in the development of smart city strategies, and the potential value for telcos in participating in each of them.
The smart city lifecycle
The evolution of smart city strategies
The concept of smart city and smart community goes back to 1997 when the California Institute for Smart Communities developed a “Smart Communities Guidebook” in which smart community was defined as following:
“A smart community is simply that: a community in which government, business, and residents understand the potential of information technology, and make a conscious decision to use that technology to transform life and work in their region in significant and positive ways.”
Since then, the definition of smart city has evolved between an approach majorly focussed on the use of technology and another one towards a more collaborative approach among different disciplines trying to make the entire concept less technology centric. The latter has driven the attention on the concept of smart city. In fact, on the technology side, the advent of the Internet of Things (IoT) has provided the technological tools for simply implementing the definition by the California Institute for Smart Communities. On the socio-economics side, the continuous demographic pressure on cities and their increasing economic importance have pushed city administrations to re-think the purpose of the city and the services provided to citizens, businesses and other city stakeholders. The combination of the possibilities offered by technology and the increasing socio-economic importance of cities have brought the concept of the smart city to the top of the political agenda and challenged the business community to explore how to transform smart cities into a business opportunity.
Putting aside the socio-economic and political aspects of smart cities, the IoT has become an important technological framework for smart city development. The IoT transforms spaces into connected and intelligent ones. The data are gathered, exchanged, analysed and actions are taken based on that analysis. However, the data gathered within smart cities is spread across multiple different systems. The key role of IoT is therefore to provide the technological fabric for the smooth functioning of a smart city’s “system of systems” that benefits both citizens and businesses.
In practice, many smart city projects evolve organically, from the bottom up, rather than from a top-down technology driven model. Several cities have started experimenting with the application of IoT in their services, initially, focussing on a specific application. There have been then several smart parking projects, intelligent lighting projects, smart public safety solutions and so on. But that is only the first step. As per any IoT solution, the user appreciates the value of the IoT project outcome – the beauty of the data gathered and the value of its analysis – and wants then to explore more. In that way, the smart parking projects have expanded into environmental monitoring solutions and/or public safety solutions, gradually morphing into more complex projects.
Introducing the smart city strategy lifecycle
The evolution of smart city projects requires an overall smart city strategy that needs to be managed. The smart city strategy does not have a conclusion, but rather evolves continuously based on achievements, issues and new city needs. Therefore, it is important to see smart city strategies with a lifecycle approach, broken into five key phases.
Figure 1: Smart city strategy lifecycle
Smart city assessment: This phase looks at the needs of the city, as well as its level of digital maturity. The digital maturity can be addressed in a variety of ways through the monitoring framework (discussed in more detail later in the report). This phase needs to be very inclusive of all the city stakeholders: businesses, academia, public organisations and citizens’ groups. The output of the smart city assessment is then used in the strategy design phase.
Strategy design: A smart city strategy document should contain overall objectives, projects to implement, and resources to use. The strategy document should also include a monitoring framework.
Strategy launch: Following agreement on a smart city strategy, some cities run an external consultation with city stakeholders for a sort of wider evaluation. The launch phase’s main goal is to make the city aware of the strategy and the roadmap for implementation. The inclusiveness of the city as a whole in the process is a key factor of success.
Strategy implementation: The length of this phase really depends on the decisions in the roadmap. The roadmap could include both short-term and long-term projects.
Smart city monitoring: In this phase the monitoring framework established in the strategy design phase is put into operation. That framework should assess the evolution of the smart city strategy implementation. The output of the smart city monitoring can enable another cycle, starting with a fresh assessment. The repetition of the cycle can also be established in the smart city strategy.
Those participating in smart city monitoring, assessment and strategy design phases tend to be long-term, ongoing partners of municipalities, while the implementation phase includes many more partners on a project basis. For telcos seeking to play a broader role in smart cities, the goal is therefore to be more involved in the monitoring, assessment and strategy phases.
Smart city monitoring framework: What smart cities are trying to achieve
Smart city governance models: How cities are working towards their goals
Defining smart city governance
Mapping smart city governance models
Smart governance case studies
The smart city coordination opportunity for telcos
Telcos’ current participation in smart city governance
How telcos can develop a coordination role in smart cities
Sense check: Can data growth save telco revenues?
A recent STL Partners report – Which operator growth strategies will remain viable in 2017 and beyond? – looked at the growth strategies of 68 operator groups, and identified eight different growth strategies employed over this sample. The eighth strategy was to expect mobile data growth to start to reverse the decline in revenues once the decline in voice and messaging revenues is complete. In the previous report, we argued that data revenue growth would not rapidly counterbalance the losses of voice and messaging due to the forces outlined in Figure 2 below:
Figure 2: Trust in the increasing value of (and spend in) broadband data
In that report, we showed a number of examples, including NTT Docomo in Japan, which has been experiencing voice and messaging declines for the longest period of telcos we are aware of, and the UK market, which is competitive with relatively good availability of market data (See Figure 3):
Figure 3: STL Partners can find no evidence of long term revenue growth driven by increased mobile broadband demand in mature markets (outside duopolies)
Source: Company accounts, STL Partners
Despite the clarity of our own convictions on this matter, we are aware that some telcos are growing their revenues, and also that a minority of our clients (perhaps one in ten based on a number of informal surveys we have run in workshops etc.) believe that data could start to regrow the market in certain conditions.
Given how attractive this idea is to the industry, and how difficult and lengthy the path of transformation and creating digital services is proving for telcos, we decided that it would be useful to revisit our assertions, to dig deeper to see what signs of growth we could find and what might be learned from them. This report contains our findings from this further analysis.
Background: The telco ‘hunger gap’
This decline is not a new story, and STL Partners has been warning about this phenomenon and the need for business model change since 2006.
Back in 2013, STL Partners estimated that digital business would need to represent 25+% of Telco revenue by 2020 to avoid long-term industry decline. However, to date we have not taken the view that data revenues will to grow enough to make up for the decline in traditional services, meaning that “hunger gap” will not be filled this way (see Figure 4).
Figure 4: The telco ‘hunger gap’ between the decline in traditional and data revenues
However, making the transition to new business models is challenging for telcos, who have traditionally relied on an infrastructure-based business model. Digital businesses are very different, and the astronomical growth in demand for mobile data services over the past decade is placing severe strain on networks and resources.
We have argued that telcos now need to make a fundamental shift from their traditional infrastructure-based business model to a complex amalgam of infrastructure, platform, and product innovation businesses.
Alternatively, growing data would be an innately attractive prospect for the telecoms industry. It would not require all the hard work, risk, change and investment of transformation. Hard-pressed executives would love nothing better than the ‘do little’ strategy to work out. It’s an idea that can easily find traction and supporters.
But is it a realistic prospect to grow data revenues faster than voice and messaging are shrinking?
To sense-check our original assertion that data will not grow overall revenues, this report takes a new look at the available evidence. We picked six different telcos appearing to exhibit representative or outlier strategies to see whether there may currently be grounds to change our view that data revenue growth will not grow the overall telecoms market.
Review of global trends in data growth
The explosion in mobile data growth
The link between data consumption and ARPU
Data tariff bundles increase in volume
Multiplay bundling and the fixed network advantage
Zero rating and net neutrality
Case studies – different data strategies
Four data growth strategies
The traditional growth model
The disruptor/challenger model
The innovator model
The OTT proposition
Case studies comparison: Investment vs risk in summary
Case study: Innovator: DNA (Finland)
Case study: Disruptor/Innovator: T-Mobile US
Case study: Super-disruptor: Reliance Jio (India)
Case study: Disruptor: Free (France)
Case study: Traditional/Innovator: Vodafone UK
Case study: Traditional: Cosmote (Greece)
Telcos need to seek fresh business models
Network investment will need to be even more intelligently targeted than with 3G/4G
New growth opportunities are emerging
A little thoughtful innovation goes a long way
Figure 1: Trust in the increasing value of (and spend) in broadband data
Figure 3: STL Partners can find no evidence of long-term revenue growth driven by increased mobile broadband demand in mature markets (outside duopolies)
Figure 4: The telco “hunger gap” between the decline in traditional and data revenues
Figure 5: Cisco global data growth 2016-2021
Figure 6: Total estimated UK mobile retail revenues
Figure 7: SMS and MMS sent in the UK, 2007-2015
Figure 8: Selected telco data growth strategies
Figure 9: Analysis of mobile operator growth strategies
Figure 10: DNA revenues and churn 2012-2016
Figure 11: DNA mobile data growth 2010-2016
Figure 12: DNA mobile data growth forecast
Figure 13: USA average monthly data use, 2010-2015
Figure 14: Deutsche Telekom non-voice % of ARPU, 2009-2016
Figure 15: T-Mobile US total revenues and non-voice ARPU, 2009-2016
Figure 16: Reliance Jio subscription growth
Figure 17: Free Mobile 4G subscriptions and 4G data, 2015-2016
Figure 18: Iliad Free revenue growth 2012-2016
Figure 19: France average mobile data use per SIM, 2009-2015
Figure 20: France mobile value added service revenues, 2009-2015
Figure 21: Vodafone UK data use and total mobile ARPU, 2011-2016
Figure 22: UK mobile retail ARPU, 2010-2016
Figure 23: UK estimated mobile retail revenues, 2010-2015
Figure 24: Vodafone UK total mobile revenue 2013-2016
Figure 25: Greece data use and total mobile revenues