Telecommunications Industry Outlook
Interview with Craig Wigginton
Continued momentum around core telecommunications businesses—as well as innovation around non-traditional business models such as Internet of Things applications, mPayments, and evolving communications technologies—will present both new challenges and growth opportunities for telecommunications companies, says Craig Wigginton, vice chairman and US Telecommunications leader, Deloitte & Touche LLP.
Where do you see opportunities for growth in 2016?
The telecom sector continues to be at the epicenter for growth, innovation, and disruption for virtually any industry. Mobile devices and related broadband connectivity continue to be more and more embedded in the fabric of society today and they are key in driving the momentum around some key trends such as video streaming, Internet of Things (IoT), and mobile payments.
The number of “connected things” continues to grow as mobile and “smart” device utilization and connectivity continues to expand—which will ultimately shape and define the IoT space. Based on the results of our latest Global Mobile Consumer Survey (GMCS), US consumers look at their devices over 8 billion times a day in the aggregate. This is a big deal for all sectors within the telecom industry including wireless and wireline/broadband carriers, network equipment/infrastructure companies, and device manufacturers who are all critical components of this key ecosystem.
As the number of embedded devices that require mobile connectivity grows, telecommunications companies will be looking for opportunities to increase revenue through their core businesses such as network connectivity, sale of network equipment and devices, all of which this emerging ecosystem will require, as well as through new products and services that are enabled by these core businesses.
The consumer oriented “things” that comprise IoT will in large part consist of wearables, smartphones, “connected” cars and “smart” homes. We also expect manufacturing, transportation, utilities, retail, and hospitality to be big contributors to this rapidly emerging and complex ecosystem particularly in the enterprise space. Telecommunications companies will also find new opportunities for growth in the public sector, as “smart cities” gains more traction. Consumer demand for digital technologies that make it easier to access and pay for public services using mobile devices, such as parking and transportation, will help to drive these initiatives, as will municipal demand to operate the city more effectively and efficiently through applications such as connected city lighting, asset monitoring and tracking, and video security.
For telecom companies looking to expand, we expect to see a continued increase in alliances and partnerships which can help bring a variety of requisite capabilities and speed time-to-market. For example, integration with key players in industries such as retail, automotive, or healthcare is a way for carriers to expand their business, and do so in a way that is timely and less risky. Companies can avoid having to invest significant resources and time to develop these core capabilities themselves, each leveraging their natural strengths. There also remains opportunity for cross-sector M&A (e.g. telecom + media, telecom + tech), as well as M&A in other vertical industries as a way to pursue these complex solutions.
As the number of embedded devices that require mobile connectivity grows, telecommunications companies will be looking for opportunities to increase revenue.
What should businesses be mindful of as they plan for growth?
Carriers need to continue to focus on providing data and voice services that are high quality, reliable, and affordable. The challenge in 2016 will be doing this in a market where there is increasing usage, declining rates, and scarce spectrum. With billions of dollars at stake, 2016 spectrum auctions will remain a top-of-mind concern for both carriers and the US government, even though additional spectrum will only help to address part of the increase in demand for data and voice service.
Data usage has been growing dramatically, particularly due to streaming services, and is expected to continue that path in the year ahead. Wi-Fi usage will continue to be key, especially as carriers look to offload more mobile traffic onto broadband networks (especially fiber) as well as considerations around other spectrum efficiency technologies and potentially unlicensed spectrum solutions (i.e., LTE-U). Voice over LTE (VoLTE) and Voice over Wi-Fi (VoWiFi) services will also be a key focus to help carriers rationalize networks and potentially offer improved and expanded services.
Furthermore, carriers will need to consider other network strategies to better manage coverage, quality, and capacity. Further densification of cell sites including small cells represent a viable strategy for many carriers, as do other network efficiency trends such as Software Defined Networking (SDN) and Network Function Virtualization (NFV). Operators are essentially moving away from proprietary, hardware-based network equipment to software-based network functions which should allow them to manage their networks more efficiently and effectively.
Carriers need to continue to focus on providing data and voice services that are high quality, reliable, and affordable.
What markets do you see emerging in the sector?
Wearables and smartphones are two related areas to continue to watch. Findings from our latest GMCS help to underscore how wearables are beginning to gain real traction in the marketplace—with ownership rates doubling over the prior year, but still at relatively small levels (10 percent and under) indicating significant potential for growth. According to our research, those that do own wearables are actively using them—74 percent of consumers use a smartwatch on a weekly basis, and 66 percent of consumers use a fitness band weekly.
Massive data consumption will continue to grow with the expansion of IoT and more streaming of content—especially video. We also expect to see sponsored data services further emerge as providers look for ways to increase revenue in a market where consumers are less likely to invest in long-term ownership of content.
Location-based services, such as mobile advertising, also represent significant potential for growth. The overall trend: development of more services and capabilities that further leverage mobile devices, analytics and the mobile ecosystem to make everything more convenient and efficient for consumers, all while balancing and protecting privacy.
A big upcoming wave of change for the telecommunications sector will be the emergence of fifth generation mobile networks (5G). While the technology is still several years away from achieving mass market coverage, what it promises—more speed, greater efficiency, and less latency—will be essential to supporting connected things in the future, especially self-driving cars. 2016 is likely see heavy momentum toward implementation of the next generation of wireless network technologies such as 5G which should move from the lab to field trials, despite mass-market rollout still being several years away.
The smartphone market will continue to be robust with continued flexibility for regular device upgrades. With more robust upgrade options, we would also expect the secondhand smartphone market to continue to grow. In 2016 consumers globally are estimated to sell outright or trade-in 120 million used smartphones—an increase from the 80 million smartphones estimated in 2015—generating more than $17 billion for their owners. This is particularly driven by the ease of trade-ins, more transparent trade-in value, as well as the desire for owning a latest model device. The biggest potential implications are for handset vendors, who are likely to become more and more aware of the residual value of their devices as well as carriers who can get more smartphones into the hands of even more budget conscious consumers.
Lastly, we have been watching momentum steadily increasing for mPayments. The findings of Deloitte’s most recent GMCS show that there was a nearly fourfold increase in use of mPayments technology from 2014 to 2015. More handsets are being equipped with Near Field Communication (NFC) chips, retailers are upgrading payment systems in response to regulatory pressures and consumer demand, and businesses of all types, from gas stations to coffee shops, are implementing point-of-sale technology that allows customers to pay using mobile devices. Given these trends, we anticipate that mPayments will finally become a payment method of choice for many consumers in 2016.
Needless to say–there will be a vast array of changes that will make 2016 an exciting year for the sector.
Massive data consumption will continue to grow with the expansion of IoT and more streaming of content.