2018

EXCLUSIVEREPORT

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an informa Business

MAXIMIZING VALUE FROMDIGITALIZATION ANDVIRTUALIZATION

CONTENTS

We are living through an age of digitaltransformation. Since the development of thefirst digital computers in the middle of lastcentury, the march of the byte - the basic unit ofdigital information - has been unstoppable,infiltrating virtually every aspect of humanactivity.

It is tempting to look around and see our lives asfully digitized, what with the prevalence ofcomputers and laptops at work and in the home,smartphones and other mobile devices, theinternet and the Cloud, and the perceptible shiftof activities that once took place exclusively inthe physical world into the virtual.

But all the signs are that we have perhaps onlyjust reached the end of the beginning of thedigital journey. The potential transformationalimpact of emerging technologies - the Internet ofThings (IoT), artificial intelligence (AI), Big Dataanalytics, virtualized networks - could dwarfanything that has gone before. And the mobileindustry has a central stake in all of them.

According to joint analysis from the WorldEconomic Forum and Accenture, if the rightopportunities are grasped in the right ways, thecombined value-add of digital transformation toindustry and society over the next 10 yearsstands at $100 trillion. Such is its criticalimportance as enabler and carrier of digitalprogress, providing the “access, interconnectivityand applications” on which it is built, telecomsstands to benefit to the tune of $2 trillion inadditional value.

Put simply, connectivity is a vital ingredient inthe joined-up digital world we are emerging into.Thanks to its ubiquity and scale, no technology isbetter placed to deliver than mobile.

In this report,we will seek todefine two of thekey terms used todescribe the next phaseof the digital journey,digitalization andvirtualization. We will look ateach in the context of what theymean to the mobile industry - howdigitalization is creating brand newmodes of operation and business modelsfor mobile operators, and how networkvirtualization, in particular with theupcoming arrival of 5G, is shifting the paradigmin terms of what mobile can deliver and achieve.

As well as looking at the impact on the mobileindustry, we will also open the discussion up tolook at the broader role of mobile as digitalizationcontinues apace across industries and inconsumer lifestyles. We will assess what kind ofservices mobile players, and MVNOs inparticular, are able to offer to support theincreasingly digitised demands of both B2B andB2C markets, looking at areas such as IoTprovision and over-the-top (OTT) value-addedservices as routes into brand new revenuestreams.

We will also focus in on the potential for mobilecompanies to transform service levels as well asservice types, redefining customer and end-userexperiences in innovative, dynamic ways whichtie in with the expectations of increasinglydigitised audiences. Finally, we will evaluate therisks and rewards of all of this, the challengesMVNOs face in embracing what amounts tosignificant technological, operational andcultural change, and what they can do tomaximise the benefit.

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4 Understanding Digitalization

4-5 Digitalization of mobile

6 Mobile as digital enabler

7 Understanding Virtualization

8 MVNOs Europe

9 The impact on mobile operators

10 Going Over The Top

11 B2B Services - A Shift in Focus?

12 New Horizons in Customer Experience

13 At-a-touch convenience

14 Service personalization and differentiation

15 Summary: Making the Most of the Opportunity

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Defining the meaning of the term digitalization attracts some debate, a reflection of the factthat it is a relatively new concept where consensus and shared understanding is stillemerging. Some of this controversy centres on whether the term should describe the use ofdigital technology to change/upgrade specific business operations or the creation of entirelynew business models, and how it therefore relates to the concept of digital transformation.

Behind all the semantic wrangling, it is important to acknowledge that digital technology ishaving a significant impact on the mobile industry at both an operational and strategic level.Under pressure to keep up with consumer demand, to not be left behind in the digital armsrace and to arrest the slide in declining revenues from traditional voice services, operatorsview digitalization as both a means of protecting margins by cutting costs and of creatingnew revenue streams with innovative services geared for new markets.

As well as these competitive pressures towards internal transformation, the mobile industryalso has a special relationship with digitalization in the wider economy. As connectivity iswidely accepted as an essential ingredient in delivering smart, integrated, hyper-networkeddigital systems, mobile has been described as the glue which can hold digitalized operationsand services across all sectors together. The mobile industry therefore controls a resourcethat is critical to the entire concept of digitalization - a key part of the digitalizationexperience for mobile operators is therefore how they can cash in on that value.

UNDERSTANDING DIGITALIZATION:TRANSFORMING OPERATIONS AND BUSINESS MODELS

Another factor which muddies the waterswhen it comes to getting to grips with whatdigitalization means for mobile is the factthat, across many industries, digitaltransformation is often viewed assynonymous with cloud migration. If thatwere the case, then large swathes of themobile industry, particularly MVNOs thatoperate as online-only, cloud-basedbusinesses, meet the criteria for havingalready undergone digital transformation.

The Cloud is undoubtedly an important partof digitalization. Online-only MVNOs gaincertain benefits from being based in theCloud, such as lower overheads from havingneither network infrastructure nor physicalstores to burden them, plus the agility to getclose to niche markets and respond rapidlyto shifting demands. But should we definean online MVNO which is simply sellingvoice and data packages from a digital store- in other words, operating the samebusiness model but via a different channel -as fully digitalized? Does that modelmaximise the full potential digitalizationoffers to mobile operators in terms of value?

When asking what digitalization canachieve for mobile, industry insidersfrequently refer to companies like AirBnB,Uber and Netflix to provide a yardstick.More than just adopting a cloud-basedoperational model, these are companieswhich have used digitalization as a definingstrategic principle and have been sosuccessful they have transformed entiresectors. From MVNOs’ perspective, thelesson that these digital start-ups havemanaged to shake enterprise-sizedincumbents out of their positions in themarket should also no be lost.

For mobile operators, then, the Cloudrepresents an important first step on theirdigital journey, providing a platform forfurther change in terms of cost reduction,flexibility, technology adoption and serviceinnovation. But if we were to write a recipefor ‘full’ digitalization for a mobile operator,a process strategically geared towardsmaximising the benefits, there would beplenty of other ingredients to add to the mix.Here are the staples:

STRATEGIES BUILT AROUND CONSUMER DEMANDThe reason why Cloud migration alone - old models in a newchannel - does not amount to ‘full’ digital transformation is thatthe Cloud offers the freedom and the technology to do so muchmore. Mobile operators are now able to reshape services andcustomer experiences to deliver exactly what the customerwants, which logically should therefore be the centrepiece ofstrategy. In an industry where both customer acquisition costsand churn are high, giving a reason for loyalty throughimproved customer experiences carries a high value.

Gary Bunney, CEO of BSS and analytics service specialist MDSGlobal, says that the modern digital consumer, given so muchchoice and power in all other areas of retail and commerce, is nolonger so inclined to accept fixed, off-the-shelf mobile packages.“We believe customers are demanding more control to create theplans they need,” he said. “And they want this control across arange of different networks, services and applications. With thiscontrol comes the ability to action. To change, amend, add orterminate without contractual restriction.”

APPLICATIONS AND PLATFORMSThe key to delivering on customer demand is software. Bunneytalks about enabling customer control via a “self-serviceapplication”. Amol Phadke, Accenture’s MD of Global NetworkStrategy and Consulting, likewise describes the most innovative,disruptive digital MVNOs adopting a ‘software- driven operatingmodel’ that is “dependent on automation, analytics and AI.”

As we will discuss in more detail when we look at virtualization,software plays a key role in driving flexibility and value inmobile services by decoupling services from physicalinfrastructure. Moreover, as the sophistication of softwareincreases, the cost of both development and delivery throughthe Cloud decreases, offering businesses and consumers alikemore for less.

DATAOf the three specific technologies Phadke names, automationand AI speak of the customer empowerment and ‘self-service’control Bunney recommends, but also of efficient, fastconvenient services. Analytics, meanwhile, gives digitalizedMVNOs the opportunity to fully personalize service based on allthe data that becomes available via applications and platforms.Jaco Fourie, Head of Product Management at BSS specialistQvantel, says: “Digital solutions allow for more rapid shifting ofdata gathering tools. This enables more data to be collected andanalysed … and used to personalize the customer journeys indigital touchpoints automatically for superior customerexperiences.”

BESPOKE SERVICESFourie goes on to argue that analytics “paves the way for rapidand real-time offers and deals that can be tailored andmodulated to match the trends and data that is being gatheredon them.” The marriage of software and data in a Cloudenvironment allows mobile operators to create dynamiccustomer experiences that adapt to changing demands. It alsoallows them to throw off the shackles of voice and pure datapackages and innovate with new potential revenue streamsfrom new services.

Federico Homberg, Head of Mobile Wholesale BusinessDevelopment at Deutsche Telekom Germany, told us that he seesan increasing trend in virtual operators moving away from“branded reselling” to a “full MVNO” model. “With a full MVNOyou have no constraints when it comes to building your ownproducts,” he said. This alludes to another significant trend indigital transformation for mobile players, the move towardsDevOps operations, where programming and development skillsare highly sought after to enable operators to build their ownbespoke software and platforms.

DIGITALIZATION OF MOBILE

Through the blend of ingredients discussed above - theCloud, advanced software, data and bespoke servicedevelopment, all served up to suit the customer’s tastes -digitalization is reshaping the relationship betweenmobile operator and consumer. But it is also opening updifferent opportunities, for virtual operators especially, indifferent parts of the value chain, allowing companies toposition themselves as B2B enablers of mobile servicesrather than the traditional B2C retailers.

Gary Bhomer, Principal at industry consultancy Tel-Consult, makes the point that in the first place,digitalization is having a significant impact on themobile industry’s own wholesale ecosystem. “DigitalMVNE / BSS platforms are available via an outsourcedreal-time cloud environment,” he said. “This frees up theMVNO to focus on sales and marketing whilst havingtheir technology needs delivered “as a Service” and via adedicated state of the art digital platform…MVNEs willbe in a unique position to enable the level of innovationand differentiation necessary to succeed, in an agile andcost-effective manner.”

Digitalization is also creating opportunities for mobilecompanies to market these kinds of services to muchbroader B2B markets, not just to other mobile operators.Businesses of all sizes, from enterprises to SMEs, areincreasingly viewing communications and connectivityas another part of the IT stack, and want the convenienceof bundled services which deliver Cloud computing,security and mobility all in the same package. Byadopting fully digitalized ‘as-a-Service’ business models,mobile operators can play the role of enabler to meetthese demands.

Similarly, IoT is creating another enormous potential B2Bmarket for agile, innovative mobile service providerswho are prepared to respond to demand. Here, theflexibility and cost efficiency of the Cloud come intotheir own, as operators look to maximise value from an

enormously diverse market characterised by highvolumes and low margins.

All in all, these emerging B2B opportunities reflect thefact that digitalization is a process taking place acrossvirtually every industry, and that mobile has a key role toplay in providing the connectivity that holds it alltogether. The term digital ecosystem has emerged todescribe the complex web of connections that emergewhen businesses across industry verticals andhorizontals interact with each other and their customersvia a wide range of different digital technologies, be it fortransactional, communication or collaboration purposes.

Recognition of the importance of getting to grips withhow digital ecosystems function is on the rise -Accenture suggests 27% of senior executives see digitalecosystems as changing the way they deliver value.According to Thandi Demanet, Business Analyst atTMForum, MVNOs in particular are ideally placed tocapitalise on this shift in value accretion thatdigitalization is driving.

“MVNOs intrinsically possess capabilities that arevaluable in this new ecosystem era,” she said. “Whileproviding connectivity over which to run complex digitalservices may seem the obvious role for a communicationsservice provider, the MVNO can and should also leverageother capabilities and strengths it has including lookingat agility and its current customer base.

“IoT and value ecosystems comprise a complex valuestack consisting in connectivity, of course, but also,device management, data gathering and processing,security and privacy assurance, charging, billing andsettlement, customer experience management, digitalplatform provision and management, APIs, OTTapplications, etc…Many innovative MVNOs are alreadylooking at designing and adopting new business modelsand actively seeking innovative partners to develop newservices and commercial opportunities.”

MOBILE AS DIGITAL ENABLER

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Network virtualization mirrors a process that hasalready reached an advanced stage in IT systemarchitecture. Put simply, virtualization involves theprocess of replacing hardware components in a systemwith software components. The hardware is still there,but the functionality each component previouslymanaged and enabled is now handled by an additionalsoftware, or virtual, layer that sits on top of it.

The most obvious example is in data centres, where thefunctionality of physical servers has now been takenover by virtual machines, or VMWare. You still need thephysical server as a base, but the VMWare utilisesresources much more efficiently, increasing capacityand greatly expanding the number of services that canbe run from a single server. Virtualization is the back-end technology that has enabled the emergence of Cloudcomputing, so it is therefore no surprise that it is alsoassociated with cost savings and increased flexibility.

In mobile, network virtualization is the process ofreplacing function management and service delivery viaphysical infrastructure components with a new,software-based virtual layer. The key technologies are:

● Software-Defined Networking (SDN): A software-based architecture that separates network control from the underlying infrastructure. This means that network functions can be managed remotely and on any kind of computing device.

● Network Functions Virtualisation (NFV): This replaces hardware elements in a network, such as switches and gateways, with virtualized software equivalents that are then used to build communications services.● Cloud RAN: A Cloud-based solution for managing access to networks.

One of the most significant changes network virtualizationcould bring about is making many expensive, specialisthardware components obsolete. Instead of having tocommission and replace costly equipment such asswitches and gateways, carriers can run their virtualequivalents on generic, low-cost computing devices. Soalthough in the short term the initial CAPEX costs ofvirtualization are high, in the long term it is estimatedthat it will vastly decrease TCO for network operators.This is supported by the fact that maintenance andmanagement of the network becomes much easier andcheaper - instead of having to send out engineers toinstall new hardware to add capacity or repurposebandwidth, it can all be done remotely via a laptop.

While the process of virtualization has already begunwith core network LTE infrastructure, the full impact willarrive with 5G. In order to meet the enormous newcapacity, speed and low latency standards that 5G hasset out to achieve, it is being built around a fullyvirtualized architecture. That means that as carriersbuild their 5G infrastructure, they are also building thevirtualized networks of the future.

UNDERSTANDING VIRTUALIZATION: A NEW KIND OF NETWORK

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THE IMPACT ON MOBILE OPERATORSWith ongoing LTE virtualization and thenthe arrival of 5G, it won’t just be front-endmobile service that are run in the Cloud. Theentire infrastructure, the entire ecosystemwill be Cloud-based, so you could say thatvirtualization will complete the process ofdigital transformation for the mobileindustry at large.

According to the World Economic Forum,virtualization could add $220bn in value forMNOs and equipment vendors over thecourse of a decade, mainly due to a sharpreduction in CAPEX technology costs andhuge increases in energy efficiency. Asowners and guardians of the network, itmakes sense that carriers should stand toget the most direct financial benefits fromvirtualization. Analysys Mason predicts thatinvestment in SDN and NFV technology willincrease by CAGRs of 59% and 38%respectively between 2017 and 2021, drivenby the expectation of cost savings and muchgreater agility in new service development.

There are numerous potential benefits forMVNOs, too, especially in terms of increasedagility and flexibility. For one, virtualizednetworks are a natural fit for cloud-based,fully digitalized MVNO business models,and many insiders agree that virtualizationcould encourage growth in MVNO numbers.Cam Cullen, for example, Global MarketingVP at network equipment vendor ProceraNetworks, believes that the unlocking ofgeographical boundaries offered by CloudRAN will benefit operators and MVNOsalike. “Can you imagine a world whereoperators are unlimited by their coverageareas and differentiate themselves based ontheir capabilities, service distinctions, targetmarkets and use cases instead of theirinfrastructure footprint?” he said.

Eve Griliches, a program director at IDC,makes a similar point about ‘servicesdecoupled from infrastructure’, pointing outthat the additional efficiencies offered by avirtualized network mean operators will beable to host multiple MVNOs on the samenetwork - much as multiple cloud operatorscan share a single data centre.“[V]irtualisation means carriers can supportmultiple services on a single networkinfrastructure - multiple MVNOs sharingsame resources, better scalability for multi-play services, MVNEs becoming completelyvirtualized businesses, slicing pieces of theirnetwork share to scale for multiple offers,and selling it through the cloud,” she said.

“Virtualization brings a new paradigmwhere sharing the infrastructure,engineering, technologies and maintenanceof the network actually brings disparategroups together on a common platform… Ifmultiple networks can operate securely onone platform, this clearly will have animpact on the overall organization in realand positive ways.” You could sayvirtualization ushers in a new kind of digitalmobile ecosystem.

The decoupling of services frominfrastructure also opens the door to muchgreater levels of innovation, both in thetypes of services themselves and in servicelevels. This encourages new players to reachinto new markets, matching expertise todemand and scaling up distribution withoutrestrictions. As a system built on softwareassets, there is the opportunity for operatorsto follow the lead of Cloud IT developers andopen up their application planninginterfaces (APIs) so that any business canbuild their own bespoke solutions to beprovisioned on their network.

Wolter Lemstra, associate professor at theStrategy Centre of Nyenrode BusinessUniversity, believes this will be critical forboth the evolution of the MVNO model andthe successful implementation of 5G.“Today’s MVNOs can take advantage ofniche markets but the service they offer isonly what the mobile operator can provide,”he said. “If you give them access to APIs in5G they can tweak and bundle mobility withIT services and therefore offer more. I thinkthis is a way to create leadership andstimulate the take up of 5G. MVNOs haveaccess to different markets and are able todo lots of specialisation. Mobile operatorscan never go that deep”.

As well as providing flexibility and betteraccess to network for virtual operators,virtualization can also help mobiledigitalization achieve its full potential bydelivering the efficiency, speed and capacityservice innovation needs. Whether it is OTT,analytics, business services or IoT,multiplying the applications available to runon networks will only further fuel the surgein connected devices and data consumptionthat is driving towards a new paradigm of1000x capacity demand. 5G/virtualizednetworks are therefore critical in allowingvalue-added new services and businessmodels in mobile to get off the ground.

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B2B SERVICES- A SHIFT IN FOCUS?

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One consequence ‘moving up thestack’ to find new revenue streamsin service provision could be thatwe see more and more mobileplayers shift focus away from B2Cretailer operations towards B2Bservice provision. This does notnecessarily mean existing MVNOswill stop selling voice and dataplans and look to enter businessmarkets overnight. But it couldmean that, as time goes on, we seemore and more new virtualoperators emerge in the B2B space.

The principles behind developingbusiness services are just thesame as those for consumerservices - the first step isunderstanding what the customerwants. Daniel Neill, CEO of Kajeet,an MVNO which provides wirelessservices to educationestablishments in the US, told theMVNOs World Congress 2018: “Ibelieve the essence of being a B2BMVNO, or a connectivity solutionprovider to a particular enterprise,is founded on understanding thecustomer's business and theirproblem. And not assuming youknow what it is their trying toachieve. So, a great deal ofinvestment must be made inunderstanding what the problemsare. What the challenges are. Whatthe pain point are of the customeryou've decided to target.”

Whereas consumers tend toprioritise cost, convenience andflexibility in mobile, withinnovative added features a bonus,business customers want, on top ofvalue, reliability, customisedsolutions and control. They are theideal market for the ‘as-a-service’cloud business model as morethan just voice and data, manycompanies are looking for value-added managed services whichadd value by helping them runtheir business better.

Let’s take a closer look at two areaswhere mobile operators arealready successfully making theshift into business services.

APPVNOThe AppVNO model can be viewed asvirtual operators striking back against theOTT players. AppVNO providers follow theprecedent set by the likes of Skype andthen WhatsApp - offering calls, messagingand video via an app, with no charge percommunication other than whatever datayou might use if connected to a cellularnetwork.

In the best tradition of MVNOs, AppVNOstarget their services at very specific niches.B2B services are popular as businesses aremore inclined to pay a subscription chargefor secure, reliable communicationssolutions. Chris Michael, CEO of UK-basedAppVNO Swytch UK, said: “We are trying toget rid of the need to carry a second workphone, or for employees to have to use theirpersonal number for work purposes. Acompany can sign up and within a fewminutes, they will have an account.Employees download the app and gainaccess to up to five mobile numbers”.

One area where the AppVNO model canpotentially maximise revenue streams is bylinking in communication with otheradditional services. Dime Global might bedescribed as an ‘AppVNE’, providing theplatform that operators can use to delivertheir own voice, messaging and video appsand connect to other services.

Dime Global COO Sebastiano Galantuccisaid: “Dime is a new concept blending newservices and partnering with operators andservices providers. It’s a collaborationplatform which values the communityconcept. For users is about connectivity, forMVNOs and operators is about added valueservice and sharing, managing, and havingmore interaction with the community too.

“Apps are now everywhere and they can belinked to basic services which add value tothe MVNO. There’s music options, financeand many others that will help positionthem in the market. Recently there’s been alot of conversations around data andsecurity, that’s another element thatMVNOs can look into. There’s plenty thatcan be done for those users who value anadditional security level – encrypting calls,texts etc.”

This kind of enabling service extendsbeyond assisting would-be AppVNOproviders, too. There is growing interest inall types of companies offering digitalservices to include communicationcapabilities in their apps as an added-valueservice. For existing AppVNOs (or theirenablers) with the know-how to deliverthese services, there as a marketopportunity to act as ‘communications-as-a-service’ providers.

INTERNET OF THINGSRecognised as perhaps the key growthmarket for mobile services in the yearsahead, competition in the IoT space isexpected to become fierce despite lowARPUs. With anything between 20 billionand 46 billion connected IoT devicespredicted worldwide by the start of the nextdecade, the sheer scale of the industry isensuring operators are investing in IoTnetworks and MVNOs are emerging todeliver bespoke services.

Given the size and the diversity of IoT,Analysys Mason argues that networkvirtualization is essential to give mobilecompanies the agility as well as thecapacity to capitalise on demand. IoTconnectivity represents a very differentproposition to traditional voice and dataservices for mobile phones, nevermindcreating margins when data rates are verylow. But connectivity is nonethelessessential for IoT, and with the right kind ofservice innovation, digital mobile operatorscan still hope to generate significant value.

Areas such as network security, remotedevice provisioning and analytics allrepresented value-added opportunities forIoT MVNOs. Verizon is certainly confidentthat data management and analytics will bein high demand from IoT operators. It hascreated its own Cloud-based IoTmanagement platform to market to MVNOs,confidently predicting that the PaaS marketin IoT will be worth over $1bn by 2020.

Similarly, German carrier Deutsche Telekomhas invested in its own IoT platform.Federico Homberg, Head of MobileWholesale Business Development, said: “ForM2M/IoT we have created a centralizedplatform, the “MISP” (Multi-IoT ServicePlatform). This platform supports all layersfrom global connectivity to device & servicemanagement and further into analytics,vertical applications and the integrationinto business processes. All of our localentities can use this IoT production plantwith either standardized products for massmarket approach – but also for IoT productsthat are tailored to the needs of specificcustomers and/or verticals.”

It isn’t just the big operators focusing onthe IoT opportunity. Tel-Consult’s GaryBhomer sees MVNEs recognising thedemand from MVNOs for solutions they canmarket to IoT players. Indeed, the world’sbiggest MVNE, Plintron, has a global IoT-focused operation. “Traditional MVNE’s arealso launching IoT capabilities whichopens up a new and fast-growing marketfor them and their customers,” said Gary.“The IoT market is likely to be much morefragmented than traditionaltelecommunications, and a huge area forgrowth where MVNOs can deployinnovative and targeted service offerings ina flexible and innovative manner.”

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As Analysys Mason points out, mobile operators lookingto diversify with new services is nothing new. WithARPUs from voice and data on a long decline, there is nolack of awareness of the need to generate new revenuestreams in new areas. One of the ironies is that, whilemobile companies have been held back in their attemptsat innovation by the restrictions of a physical network,agile web-based companies have stepped into theirterritory offering OTT services for voice, messaging,video and more, ramping up the competitive pressureand starkly illustrating the advantages of digitalisation.

Now, with cloud-based business models evolving andnetwork virtualization progressing, perhaps mobileservice providers have the chance to redress the balance.

We have already noted that the mobile industry sits in aunique position as an enabler of digitalization across allsectors of the global economy. As an indicator of the kindof value service innovation could deliver to the industry,the World Economic Forum estimates that the telecomsindustry could derive more than $10 trillion in value fromsupporting digitalization in just five key sectors - media,electricity, logistics, automotive and e-commerce.

Elsewhere, the WEF also identifies 65 examples of digitalinnovation across six sectors which it believes areoffering significant value to both business and society. Itis instructive that mobile has a significant stake in themajority of these, for example:

● In the automotive industry, the WEF picks out examples such as infotainment, usage-based insurance, connected service and maintenance, the automotive data marketplace and assisted driving. All of these depend on connected car technology, with mobile connectivity via e-SIM providing the telematics and content services to drive all of these. ● In the utilities industry, IoT smart meter connections are supporting services such as smart energy management, smart asset planning, real-time supply and demand platform and real-time network controls. The WEF believes connectivity services will help the industry achieve $170bn in cost savings for consumers in a decade.

● The media industry is benefitting from personalised content, personalised advertising, OTT and OTT 2.0, services for which mobile devices represent a significant market.● Examples from the consumer sector include e-commerce, hyper-personalization in goods, data privacy and data to improve customer experiences, which again involve significant targeting of the smartphone sector.

The key for mobile operators is how not to bemarginalised from the revenue streams in services thatare essentially operating in their own backyard. To thisend, there is a distinction between the first two items onthis list and the last two. Connected cars and smartutilities represent relatively new applications oftraditional mobile connectivity services, ones where mobileoperators have been able to get in on the ground floor andforge valuable partnerships with car manufacturers, ITspecialists and digital service providers. An example isCubic Telecom, which delivers connectivity services forAudi smart cars.

In media and consumer markets, however, mobileoperators have often been left with only low value indirectrevenue from apps being used on their data plans. Indeed,the WEF makes a direct link between the evolution of OTTservices and declining operator incomes. That is why itadvocates telecoms companies looking ‘beyond the pipe’and diversifying into areas beyond pure connectivity,regardless of the fact that it is the network that gives itsuch an important stake in digitalization.

It suggests that operators will need to “move up thestack” and themselves become the service providers inorder to retain or even regain a position in the valuechain. According to the WEF, a quarter of global operatorsexpect digital services, in both consumer and enterprisemarkets, to account for 25% of total revenues by 2020.

Digitalization and virtualization give mobile providersthe platform to do this. A critical point might be wherethey find the expertise to, for example, develop newvalue-added applications. This is where the importanceof strategic partnerships becomes obvious, as seen in theexample of connected cars.

GOING OVER THE TOP: ADDING VALUE WITH SERVICE INNOVATION

If digital services represent a newera of opportunity for mobileoperators, service levels are the keyto maximising their value. Butnowadays much of the talk is notjust about excellence in customerservice, it is about designing andimplementing holistic customerexperiences that drive conversionsand encourage loyalty.

We said earlier that the first step todigitalization should be buildingstrategies around what the customerwants. To paraphrase the WEF, wecan view this as representing a “shiftfrom simply selling products andservices to creating unforgettableexperiences”. The way to achievethis is through highly differentiated,personalised offers and seamless,instant on demand access forultimate convenience.

Tel-Consult’s Gary Bhomer suggeststhat the mobile operators whoperform best on customerexperience “put the customer in

control where they can personalisetheir own plans, set their own spendlimits, change tariffs in real timeand share balances with other users.They are less reliant on pre-definedplans that may not be suitable for anindividual’s unique and changingneeds. Customers are also in a muchbetter position to service themselvesdirectly, or via social channels,rather than being subjected to“cookie cutter” customer servicemodels.”

For mobile operators, digitalizationand virtualization are key todeveloping the experiencescustomer want and increasinglyexpect. With the decoupling fromphysical network resourcesvirtualization offers, MVNOs get fullcontrol to design and developcomplete end-to-end services andexperiences to maximise impact.Digital touchpoints, through apps,web portals, social media and more,give customers the convenience andflexibility to access services as and

when they want. And the ease ofintegrating advanced technologieslike analytics and AI into cloud-based digital platforms meansoperators can deliver richer, value-added experience, using data topersonalise and AI to offerconvenient self-service option.

As Analysys Mason points out, themain benefits for mobile operatorsare a reduction in churn, costsavings from creating more efficientservice streams and the potential tograb market share by providingbetter service than competitors.That is why, it argues, major carrierssuch as AT&T, Telstra and Veon areprioritising investment in customerexperience in their digitaltransformation plans.

NEW HORIZONS IN CUSTOMER EXPERIENCE

Whether they are shopping forgroceries or upgrading their mobileplan, consumers want theconvenience of being able to dowhatever they want in the here andnow. It is an expectation that hasbeen created by the digitalization ofeveryday life, via the internet,smartphones and, indeed, mobileconnectivity.

Qvantel’s Jaco Fourie argues that theway digitalization has changedconsumer behaviour is forcingmobile operators “to seek radicallymore efficient methods of doingbusiness to serve customersaccording to their new needs andexpectations.” He points, forexample, to analysis from ForresterResearch which suggests that self-service and automatedconversations are two of the keytrends in customer service, simplybecause people would increasinglyrather resolve issues themselvesthan go through an agent or speak toa sales clerk face-to-face in a store.

Analysys Mason predicts thatmobile operator investment inautomated attendant solutions willgrow at a CAGR of 67% up to 2021.

Operators which have alreadyembraced this technology includeUS MVNO Ultra Mobile, which saysthat the introduction of AI-poweredchatbots into its customer serviceoperations has helped it to increasefirst-call resolutions to 80% and ledto a rise in its net promoter score.One of the key benefits it has seen isreducing the amount of time agentsspend handling routine, basicqueries, meaning they can focusattention on more complex issues.

Fourie also argues that the e-SIM, ifand when it takes off in consumerdevices, will provide another meansfor mobile operators to deliver moreconvenient and flexible services tocustomers. “An eSIM will replace thecurrent system where an operatormust issue a chip to a new customerin order to on-board them to the

network, with a digital system onthe device that fulfils the samefunction,” said Fourie. “This will beupdateable remotely and will alloweasy operator switching. To properlyutilize this system – something thatis highly in demand – digital saleschannels are vital. In the futureworld where customers can evenmore easily change their operators,the operators with the best, leanestand most customer-oriented digitalprocesses will win.”

One company with an innovativetake on providing seamlessprovisioning and accessibilityservices via e-SIM is Idemia. Thecompany uses what it calls an‘augmented identity’ solution to offerself-registration for mobile servicesusing biometrics. The idea is tocompletely remove barriers fromcustomer acquisition and access -users do not even have to register orsign in, everything is controlled bybiometrics to offer the ultimate inspeed and convenience.

AT-A-TOUCH CONVENIENCE

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SUMMARY: MAKING THE MOST OF THE OPPORTUNITYThere is no shortage of benefits in terms of what theprogress of digitalization and virtualization in the mobileindustry might achieve. At the start of this report, we statedthat the WEF calculates that digitalization could deliver $100trillion in additional value to the global economy over thecourse of the next decade. We have explained how, withconnectivity an important ingredient in the digital project, themobile industry sits right in the middle of that value pool,justifying the WEF’s assessment that there is $2 trillion invalue up for grabs for the telecoms industry.

The switch to digital business models built on virtualizednetworks promises to drive efficiency, drastically reduceinfrastructure overheads, and provide mobile serviceproviders with much greater agility. Freed from the shacklesof physical networks, both in terms of geography andavailable resources, operators will be able to provide servicesanywhere, at any scale, in direct response to demand, andwith vastly reduced time-to-market.

They will be able to enter new markets and innovate with newservices, both B2C and B2B, to create new revenue streams.They will also be able to prioritise the customer experience,meeting expectations for at-a-touch, in-the-momentconvenience and hyper-personalization with dynamicdifferentiation on pricing and provision.

There will of course be challenges in achieving all of this.Qvantel’s Jaco Fourie suggests that, due to their complexity,digitalization projects have a high failure rate. “Some of themost common challenges that companies face are theoverwhelming complexity in existing legacy systems, lack ofinternal expertise for driving major transformation, employeeresistance to change, a lack of support from 3rd partysuppliers, budget constraints and a lack of courage to drive areal change in the business, not just in IT systems,” he said.

MDS Global’s Gary Bunney agrees. “Many service providersfail because it involves not just a system change but also tochange in skills, resources, processes, culture, structure andshared values,” he said.

So what can mobile operators, and MVNOs in particular, doto make sure their digitalization efforts don’t fall by thewayside and they can maximise the benefits available? Interms of network virtualization, of course, MVNOs aredependent on the infrastructure transformation projectsundertaken below them, and may have to wait several yearsfor 5G to reach critical mass. But here are five takeaways tokeep in mind as key principles for digitalization:

FOCUS ON THE CUSTOMERThe customer sits at the heart of the digitalization process.Largely thanks to the the smartphone, the digitalization ofour personal lives has happened in advance oftransformation in business. Companies are now playingcatch up to meet the expectations of their customers.

Digital strategies should be designed and developed from acustomer first-approach. The key things that can be achievedthrough digital business - personalized service, frictionless

access, at-a-touch convenience and layered added-valueservices - will ultimately help to reduce churn and raiseARPUs.

MITIGATE RISKSOne of the key benefits of digitalization, especially in thecontext of adopting cloud-based operations, is costreduction. Not only does this have benefits in terms ofreducing overheads from physical equipment andinfrastructure, it also means switching from CAPEX to OPEXexpenditure. As Gary Bunney argues, this is helpful forMVNOs who are looking to innovate with new services andbusiness models - if your suppliers are cloud-based ‘as-a-service’ providers, you can mitigate investment risk byspreading the costs via OPEX subscriptions.

COLLABORATEFor operators looking to enter new markets with newservices, one of the major challenges is relevant expertise.For example, for an MVNO to adopt a DevOps approach andto start custom building solutions for customers, it needsaccess to programming skills. Rather than go to the troubleand cost of recruiting directly, another approach would be toseek strategic partnerships with software house that couldprovide the necessary expertise.

Many in the industry believe, that with the era of open APIson software-defined networks approaching, the future of theindustry will depend on abandoning the ‘walled garden’approach and instead see players look to share value acrossa much more collaborative digital ecosystem.

ENGAGEWe have already said that focusing on customer needs isimportant for reducing churn. A further way to cement this isto actively seek to engage customers in your brand. Evenwith all the innovation in tariffs and billing you can muster,when it comes purely to selling voice and data, there is littleto differentiate one operator from the next except for price.That gives your customers little incentive to stay if they see abetter deal from a competitor.

They way to make customers ‘stick’ is through added-valueservices. Whether it is through content, financial services,roaming or so on, the digital operator should be thinking ofways to make their brand an unforgettable first choice.

INNOVATEFinally, digitalization is all about innovation, and its spiritshould pervade throughout any transformation project. AsDeutsche Telekom’s Federico Homberg suggests, innovationis about more than just looking at new products, it meansinnovating with business models, with processes and withthe structure and culture of a business itself.

In other words, it means being bold and embracing theexciting digital future wholeheartedly.

One very visible way in which digitalization is helpingto usher in personalization of mobile service is theemergence of online MVNOs offering ‘Build Your Own’call and data packages. Companies such as Simyo inSpain and Yoodo in Malaysia let customers choose thedata and minutes they want and provide a customisedprice for the plan.

Yoodo also offers add-ons such as 20GB ring-fenced datausage for services like Facebook, WhatsApp andYouTube. The whole service is available via an app,through which you can manage plans, order and activateSIMs and make payments.

On a much broader scale, businesses of all types areincreasingly looking to personalize services by makinguse of customer data. Mobile operators sit in a positionof power in the growing trend towards hyper-personalization simply because of the enormousvolumes of data that can be collected from a subscriber’sphone. Personal information, location data, browsing,mobile usage data and even financial data all add up to avaluable resource which other organisations wantaccess to. As well as simply selling this data, mobileoperators can create revenue streams by bundling inanalytics services, or by monetising direct access totheir subscribers, for example by triggering advertisingalerts based on location data.

Another key issue is how operators can differentiateservices dynamically for they can service multiple

markets at once. Mobile services have traditionally beendifferentiated through coverage, tariff structures andpricing, but each model has had to be supported byseparate infrastructure with little opportunity to cross-pollinate opportunities from one to the other. MVNOs,despite the advantages of size and perhaps digital-onlyoperations affording them some level of agility, have stillbeen straightjacketed in how they respond to marketopportunities by the infrastructure provided to them.

By allowing multiple operational models to be run on asingle infrastructure, virtualization breaks the shackles.One exciting development to come out of this is automatedpolicy management, which will lead to dynamic pricingand resource allocation. Cam Cullen of Procera Networksexplains: “[Operators] want management solutions basedon more granular information, such as user plans, devicetypes, applications and behavior, to transformcongestion management and optimize theirinfrastructure. Virtualization of policy control functionsenables this transformation. “

Throughout the mobile ecosystem, this approach meanseveryone, from wholesale through retail to the end user,could pay for what they used. Network resources can beoptimized according to demand across multipleservices, leading to huge efficiency gains and a muchimproved end user experience. It would also giveMVNOs greater opportunity to differentiate theirservices for specific niches at a much more refinedlevel, adopting more of a ‘full MVNO’ model.

SERVICE PERSONALIZATION AND DIFFERENTIATION

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