MWC: The Future of Mobile: Part 1

7 Mar 2017 • 8 minute read

There were two sessions that MWC calls "keynotes", but are actually groups of several presentations on the state of the industry. Together, the two big ones on the first day paint a picture of the industry. But depending on who was presenting, either the future's so bright that you have to wear shades, or alternatively the future is so dire that new business models are no longer optional.

The presenters in the morning were:

Mats Granryd, Chairman of the GSM Association (GSMA) who both presented and hosted the session
José María Álvarez-Palette Löpez of Telefonica
Chang-Gyu Hwang of KT Corporation
Masayoshi Son of Softbank (and the owner of ARM, of course)
Sunil Bharti-Mittal of GSMA (and Bharti Enterprises)

Then, a couple of hours later, it was:

Karen Tso of CNBC hosting the session
Josep Maria Bartomeu i Floreta of Barça, FC Barcelona (which, for you Americans that don't follow football and call it soccer, is one of the very top clubs in the world)
Alexey Reznikovich of L1 Technology
John Stankey of AT&T Entertainment Group
Travis Johnson of Ansible (and also runs a private equity fund)

Mats opened the session with some statistics on the industry, that I think are worth sharing:

Today there are over 8B connections with over 20% of 4G networks, which will rise to over 40% by 2020.
5G is coming and will have 1Gbps with 10ms latency, and as many as 1M devices per square kilometer in major cities.
They are forecasting 1.1B 5G connections by 2025.
Mobile generated $3.3T of economic value, 29M jobs, and will deploy over $700B of CapEx over the next 4 years.

That day, GSMA announced a Big Data for Social Good initiative involving 16 mobile operators responsible for 2B connections in 100 countries. The aim is to use mobile to improve the situation during epidemics and natural disasters. For example, if an epidemic breaks out, the carriers already have the ability to identify and warn people who might be at risk.

The big contrast in the presentations was between the long-term dreams and the short-term realities of the mobile industry. Let's start with the dreams.

Softbank

Let's take Masayoshi Son's presentation as representative of the "future's so bright, gotta wear shades" point of view. (I would also put the presentations by Telefonica and KT Corporation into the same camp, although I won't cover them in detail.)

Having said he was optimistic, he started out with some pessimism. CAGR for smartphones has been 37% but for the next 5 years, it is forecast to be 4%. Average revenue per user (ARPU) is going down. Mobile data traffic is growing exponentially—but revenues not so much. But he is looking beyond that with a 30-year vision. Recently they announced the Softbank Vision Fund which, at $100B, is bigger than all VCs worldwide added together ($65B).

The singularity is coming, which he defines as the day computers exceed the power of the human brain. Transistors on a chip will exceed the number of neurons by 2018. Next year. By 2040 the number will be 3 quadrillions, a million times that. Within 30 years, we will have superintelligence to make smart robots.

ARM alone will ship 1T IoT chips in the next 30 years. Today, they have 99% market share in mobile phones, he predicts that they will have 80% in IoT. By owning ARM, he can discuss what the next big things will be and has a much better understanding that would be possible without the acquisition.

If you saw his presentation at ARM TechCon last year, then you know it hit several of the same themes. The singularity is coming in the next fifty years. We will have artificial brains that are millions of times more powerful than our own.

ARM alone will ship 1T IoT chips in next 30 years. 99% mobile phones, 80% of IoT. ARM has two main areas to focus on for enhancements: security and connectivity.

Another one of his investments, OneWeb wireless, will provide ubiquitous networking from satellites in low earth orbit (LEO). High speed, global coverage, low cost. They will put up 800 satellites over the next few years and will provide ubiquitous coverage for 1B subscribers.

Going back to the singularity, Masa referred to a report created by Oxford professors on 12 risks that threaten human civilization. One of them was AI, but at least that one can be part of the solution to the other 11. He believes that all this is truly accelerating human evolution, and his portfolio of ARM, OneWeb and others will provide connectivity for the singularity.

GSMA "I Declare War on Roaming"

Sunil Bharti Mittal, chairman of GSMA and Airtel, had a less rosy view. But he has some specific ideas about what needs to change to improve the situation. The challenge is the one that Masa referred to. With 3% revenue growth, things are not sustainable for an industry with high CapEx (and that doesn't even include spectrum costs). Something has to give before the future described in the earlier presentations can come true. Return on capital employed (ROCE) is coming down fast, which is not good. Telecom needs to get in better shape to realize the digital dream.

Sunil said he had four messages, two that the industry has inflicted on itself and needs to fix itself, two which are external, largely the domain of the politicians to fix.

Mobile is barely above tobacco in reputation. One big reason is that people "love being at the destination but don't enjoy the journey on our networks." Roaming is a big reputation killer. "I declare war on roaming," Sunil stated. It is ridiculous that our message is how we make the internet and video and everything available to anyone, anywhere...but 55% of people switch off mobile data when they travel and 90% of people from emerging markets do, and many of them switch off voice, too. They use their phone as a WiFi device. This has to stop. "Roaming charges and bill shocks will be a thing of the past."
Every operator wants to build their own network: towers, backhaul etc. Every car manufacturer doesn't feel the need to build their own roads. At least subsea cables are now all in consortia, whereas 15 years ago every operator had to build their own cables. Active sharing needs to become the standard, which will get the costs down and provide more value to customers.
Consolidation: regulators have it wrong. A lot of struggling operators is not competition. Instead, what is needed is a few sustainable operators who can raise and put up the capital required. India is going from 12 operators down to 5 (maybe 4). Italy is overregulated. US works well with AT&T and Verizon, with T-Mobil as a third active competitor.
The hand of the exchequer is very heavy in the industry. Between spectrum costs, duty, taxes, that loads 30-45% on the industry. But telecommunications is a means to the future, and it is a truth that if you tax something you get less of it. Society needs a vibrant telecom industry.

On that last point, lest the US feels that it is directed at emerging company governments where mobile is one of the few industries that is not small-scale and thus hard to tax, in 2006, after 108 years, the US federal government repealed the tax on long distance phone calls that was imposed in 1898 to pay for the Spanish-American war. When it was introduced it was a luxury tax since only rich Americans could make phone calls. But by the time it was repealed, it was costing us collectively about $46B. It would be nice to think that Congress realized that after a century, a tax like that really should be repealed, but in fact it came about because of court cases that were to do with mobile bills where long distance and other calls were all lumped together so it was debatable what counted as a taxable long-distance call.

On the topic of roaming, AT&T (which I use) has changed their international plan. Instead of paying $80 (or something around there) in advance for some small amount of international data, 120MB I think, you now pay $10 per day when you use your phone overseas. That's it. Everything else just works on your normal plan for voice, data, and text. I am typing this sitting at a café in Barcelona that doesn't have WiFi, connected through my phone, which I would never have dared to do under the old way of business. So data roaming isn't free but it is a lot more convenient than it was. I believe Verizon has the same deal. T-mobile has a better deal still since unlimited international data roaming has been free for years.

Tele2

Interestingly, after all the big telcos said that they need to get into content, and get beyond connectivity, the next morning Alison Kirby, CEO of Tele2, said that focusing on connectivity is exactly what they do. They are a small operator, operating in small countries, and based out of Stockholm. Often they are the #1 operator in the country, and almost always the #1 in terms of quality of connectivity. She believes that connectivity is fueling new disruptive technologies and this threatens incumbents (not particularly in telecom, in other business that are becoming more mobile-oriented). Every business today is increasingly dependent on wireless and mobile connectivity. The operator is at the heart of this disruption.

She pointed out that some say operators risk becoming “dumb pipe” by only focusing on connectivity. But she considers that they provide a smart pipe that everyone wants to use. They are very excited about what 5G will bring but there is a lot of runway left in 4G (which is their focus today). Going forward, they will need regulatory support and predictability so that they can get the deserved return on the investments that they make; otherwise, the investments will not happen and the users will not have good service.

From a business point of view, she summed it up as, “Our role is to deliver a network experience that is so good that we can monetize that.”

Part 2

Tomorrow, I will look at the hard truths that were spelled out by some of the other speakers.