International telco trends we’re keeping an eye on

By Richard Mooney, Chief Strategy Officer, Vodafone NZ

The international telco landscape continues to evolve at a rapid rate, with Aotearoa New Zealand starting to experience some of the changes that have been playing out in the US, Europe and Australian markets over the past few years. Here are three key trends:

1. Continued and incessant demand for data

Mobile and fixed data growth has been consistent over the last 10 years, with the increase averaging roughly 46% each year (CAGR), across both mobile and fixed access types. We expect data growth to continue at this pace in the years ahead. The drivers of this increased demand will come from both the demand and the supply side.

For mobile, there has been a huge growth in capacity for data supply, both with 4G and more recently the expansion and increased uptake of 5G. Increased mobile demand has followed the rise in smartphone penetration and use, particularly video since the advent of the era of streaming. Increased fixed wireless broadband (FWA) penetration continues to spur on mobile traffic, with 5G Broadband becoming increasingly popular on the Vodafone network as our coverage grows. On the fixed data side, we have seen demand increase for fibre also stemming from a growth in video, working from home which has been exacerbated and accelerated by the pandemic, and more recently, gaming traffic.

A key trend overseas – particularly in Europe – is the debate on net neutrality, which is starting to pick up again. Several European operators are calling to redress an imbalance between network investment and revenue, with the big streaming sites like Netflix, Amazon and Google driving a large proportion of traffic. Telcos overseas are debating whether these big players should be contributing to in the cost of upgrading network infrastructure, which they haven’t done so far, seeing as they are the ones profiting the most.

It is a similar dynamic that we’re dealing with in Aotearoa. We estimate close to 80% of traffic delivered on our Vodafone NZ network is now video. Operators also need to balance investing in increasing capacity between rural and urban and consider the possibilities for sharing infrastructure. There are growing calls from parts of rural New Zealand for better digital infrastructure, however sparsely populated areas have challenging economics for infrastructure builds, so operators are increasingly looking at shared investments in areas where it is unprofitable for one operator to build alone. The Rural Connectivity Group is a good, early New Zealand example of shared investment between operators and the Crown.

This will be an interesting area for New Zealand regulators to consider, specifically with regards to the contributions that international players can make to local digital infrastructure.

2. Increased role of hyperscalers

The increased role of hyperscalers in telecommunications is another key international trend. We are seeing an increasing convergence and a large degree of collaboration between the hyperscalers – particularly the cloud players - and the telecommunications ecosystem.

For example, in the edge computing space, the assets that telcos own and the assets that hyperscalers own are largely complementary to each other. Hyperscalers have the data centre experience and customer relationships for edge cloud services, whilst telcos control the network experience and have access to network sites which are close to the end users.

Hyperscalers are also joining the automation and AI areas, with superior AI tools used by telcos but largely hosted on the hyperscalers’ infrastructure. Investment in telco infrastructure is another area where we are noticing the role of hyperscalers grow – Amazon, Facebook and Microsoft have been heavily investing in subsea networks. We’ve also seen some experimental moves with hyperscalers looking to offer telco services direct to consumers through MVNOs (e.g. Google Fi).

In terms of how we see this play out, there are many partnership models between telcos and the hyperscalers that are developing. Not a month seems to go by without us seeing a new partnership agreement, and the areas they tend to be partnering in are storage and computing, edge cloud, comms/collaboration, data analytics and provision of IoT services. In a reasonably emerging trend worth paying further attention to, we are seeing partnerships between telcos and hyperscalers to virtualise the network – effectively hosting the network functionality in the cloud. All interesting developments to keep watching!

3. Role of 5G will only grow

While the use cases of 5G are still reasonably nascent due to the nature of the service, 5G will evolve in a way that other Gs haven’t, particularly in the B2B and IoT areas. 5G is being viewed much more as a platform for future innovation, providing new experiences. It can broadly be grouped into three main areas. It provides faster speeds (up to 10Gbps) and capacity at a lower cost per GB, 5G allows for significantly more devices within a given cell site to connect to the network, and it provides significantly lower latency (down to 1ms) and increases the quality of service.

The most interesting use cases we are seeing with 5G is in B2B – such as IoT, and the ability to offer quality of service and dedicated networks or network slicing. A G cycle typically lasts for approx. 10 years (2000’s = 3G, 2010’s=4G, 2020’s = 5G), and we expect to see 5G really grow some scale in the B2B area in the mid-2020s, the midterm of the 5G cycle. This compares to previous G cycles, where the evolution was largely consumer-driven.

The main 5G use case for consumer is in providing additional capacity at a much lower cost per GB. This allows operators to offer even more compelling FWA offers at faster speeds, and we are starting to see FWA gaining traction in the US and some European markets. FWA is an area where Aotearoa leads the world, and we expect this to continue as 5G coverage increases.

Richard Mooney is Vodafone NZ’s Chief Strategy Officer, and joined the business in July 2020, following more than 20 years’ experience within the technology, media and telco (TMT) sector as a strategy and corporate development professional. He has held similar strategy roles in leading telecommunications companies overseas, including Vodafone Group/UK and most recently at Liberty Global. Prior to this, he was a management consultant helping transform TMT businesses across Europe, Asia-Pacific, and Africa.

He presented his insights on these trends in a TUANZ webinar on 12 April; watch the recording here.

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