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Deeper convergence of mobility, broadband and video services creates revenue opportunities and disruption for CSPs

The digital era is bringing fundamental, disruptive changes to traditional business models for communication service providers (CSPs), including telecom operators and cable providers, as the mobility, broadband and video industries converge more deeply. These shifts are driven by the following trends, which will gain further traction over the next several years:

  • The rise of cable mobile virtual network operators (MVNOs) — New entrants including Xfinity Mobile and Spectrum Mobile are attracting wireless customers via low price points and the convenience of being able to enroll in multiple services through a single provider.
  • Preference for over-the-top (OTT) video — The popularity of OTT services including Netflix, Hulu and HBO Now are contributing to video subscriber losses for cable providers and bundling opportunities for wireless operators.    
  • Wireless as a broadband replacement — Over the next several years, customers will gradually substitute traditional fixed broadband connectivity with wireless-based services due to enhanced 5G and LTE-Advanced coverage, fixed-wireless services, and increased data allotments for mobile hot spots.

These trends create both revenue opportunities and disruption for CSPs as cable providers have opportunity to take market share from telecom operators and vice-versa. Cross-selling multiple services enables CSPs to maximize revenue opportunities per customer while also helping to reduce churn. Conversely, the deeper convergence within the telecom and cable industries will create greater challenges for CSPs as broadband and video access will become more commoditized, which will make competitive pricing more crucial to attracting and retaining customers.

Graph showing 3Q18 postpaid phone net additions

Cable MVNOs are disrupting the mobility industry

Comcast’s Xfinity Mobile has emerged as a stronger player within the U.S. wireless market as the brand has garnered over 1 million customers since launching in mid-2017 and has been able to consistently outperform AT&T and Sprint in postpaid phone net additions the past several quarters. Contributing to Xfinity Mobile’s success is the low price of its unlimited data plans, which are currently undercutting prices from all Tier 1 U.S. operators, for the underserved market of single-line customers. Xfinity Mobile is also attracting customers by offering pay-as-you-go pricing for $12 per GB, which provides price-sensitive customers who consume minimal data an alternative amid the market’s emphasis on unlimited data plans.

Xfinity Mobile will become a stronger competitor in the U.S. market over the next several years as it expands its retail footprint and Comcast gains additional broadband customers to which it can cross-sell wireless services. Spectrum Mobile, which became available across Charter’s footprint in September, will also disrupt the U.S. wireless market by offering similar pricing incentives as Xfinity Mobile. Additionally, Altice USA plans to launch an MVNO offering in 1H19 that will focus on serving bring-your-own-device customers, giving the company the opportunity to cross-sell mobility services to its current residential base of over 4.5 million customers.

Chart showing single-line postpaid unlimited data plans

To counter disruption from cable MVNOs, operators can capitalize on the value proposition offered by their unlimited data plans, which bundle in popular OTT streaming services as well as other incentives including high-speed data tiers for mobile hot spots. Telecom operators are also relying on the discounts provided to multiline unlimited data accounts, which are not currently offered to Xfinity Mobile and Spectrum Mobile customers, to undercut cable MVNOs.

Chart showing video services bundled with unlimited data plans

Wireless begins to disrupt the traditional fixed broadband market

Significant enhancements in wireless technology over the past few years, such as the inception of 5G, which makes millimeter-wave spectrum viable for commercial use, as well as the inventions of carrier aggregation, 256 QAM and massive MIMO, have made it economically feasible for CSPs to offer mobile broadband as an alternative to traditional fixed broadband services.

Though Verizon was a major driver of this trend with its early use of 5G fixed wireless, TBR expects more CSPs will begin to leverage their wireless assets to provide similar services in 2019 and beyond. AT&T, with its Netgear Nighthawk 5G Mobile Hotspot, essentially provides a nomadic ultra-high-speed broadband connection leveraging 5G. T-Mobile is also looking to jump on the bandwagon, arguably in a much bigger and more market-impactful way, especially if its proposed merger with Sprint is approved. Regardless of whether the deal goes through, T-Mobile intends to leverage its mix of low-, mid- and high-band spectrum assets with the aforementioned wireless technologies to provide its own mobile broadband as an alternative to fixed broadband services.

A new phase of price competition for internet service could come to North America due to wireless. TBR also expects this trend to unfold in other developed and developing markets, especially where fixed access is not widely deployed. Offering wirelessly delivered, high-speed internet services could become a major new business for telecom operators that are in countries where internet penetration is relatively low.

Consumers will reap the greatest benefits from cable and telecom industry convergence

Though CSPs have the opportunity to create new revenue streams from the deeper convergence of mobility, broadband and video services within the cable and telecom industries, these benefits are largely outweighed by the competitive challenges spawned by industry convergence. Consumers will reap the greatest benefits from cable and telecom industry convergence as they gain more flexible service options as well as the ability to enroll in additional services from a single provider. The competition created from cable and telecom industry convergence will also spur CSPs to become more competitive in their wireless, broadband and video pricing to maintain market share.

Voice assistant volume is increasing

A survey conducted by Adobe Analytics found that 32% of U.S. consumers owned a smart speaker in September 2018, compared to 28% in December 2017. The report also projected that near half of the U.S. consumer base could own one by the end of December 2018, supported by Adobe Analytics’ finding that nearly 80% of smart speaker sales occur during the holiday season. It is just one study, and there are more conservative studies out there ― but even if the data isn’t completely on the mark, it does uncover the trend of voice-controlled devices gaining ground inside consumers’ households despite use cases and monetization still being blurry.

I own four Amazon Alexa-enabled devices myself: two Echo Dot smart speakers and two Fire TVs. Of the Echo Dots, one was given to me by a colleague to play around with, and another I bought for about one-third the list price from acquaintances who had received it as a gift from their extended family and left it unopened because they felt it was “too creepy.” In our household, the Echo Dots have been used as glorified hands-free music players in our kitchen and one of our bathrooms. The Fire TVs are used as media players first and foremost. Sometimes, we try some of the new skills Amazon sends along in update emails as a fun diversion, but usually that is a one-off activity. I am deeply invested in the Amazon ecosystem, having been a Prime member since its debut and a fan of Prime Video, but it is still challenging to find ways to use Alexa smart-home devices to enhance my other Prime benefits or drive me to Amazon’s e-commerce business.

Adobe’s research seems to align with my anecdotal experience, noting that among the most common voice activities* are asking for music (70% of respondents) and asking fun questions (53% of respondents). The only other activity above 50% is asking about the weather (64% of respondents). So yes, people are using them, but these are not skills that require much depth or complexity or that drive additional revenue for Amazon.

Therein lies the problem for voice-platform providers such as Amazon and Google (Microsoft and Apple are also players, but I don’t believe they are as developed as Amazon and Google are in the smart speaker and voice assistant space). In an ideal world, voice assistants would provide platform companies with a wealth of consumer data as users query the devices about their everyday needs. Also, voice assistants can be a new conduit to monetization through new applications or — especially in Amazon’s case — to lowering barriers to the purchase of goods. However, most complex tasks, such as ordering a ticket for the movie you’d like to see tonight, finding out when the beach is open, or buying an outfit for an upcoming wedding, are still much easier via a smartphone or laptop interface. The Adobe study found that of the 32% of respondents with a smart speaker, only 35% and 30% used voice interfaces for basic research or shopping, respectively.

Improving the use cases, or “skills,” of voice assistants will be critical for platform vendors to increase the use of these devices for complex tasks and to elevate smart speakers from smart radios and novelties to gleaming data gems. TBR expects this to be the major battleground between voice assistant and smart speaker providers moving forward as the form factor has been relatively proved. TBR believes Google has a slight advantage due to its heritage in data mining behind the façade of services as well as its Android and Chrome cross-platform tie-ins (a lot of relevant user data is already in Google, such as contacts, schedules, and often email). Amazon is no slouch either due to its investment spend, growing media empire and robust e-commerce platform, which Google lacks. Apple could be a dark horse; however, its Siri is still weaker on an artificial intelligence (AI) basis and the HomePod’s pricing makes it an unlikely easy gift.

The next frontier for all of these platform providers is in the commercial space, an area we may see Microsoft put much of its effort into while leaving the consumer space for better-suited peers. In fact, collaboration between Microsoft and Amazon on voice and smart speakers may confirm this. Using voice assistants and smart speakers to query analytics or gain business insights or employing them as a “smart secretary” in conference rooms are areas TBR sees as avenues for commercial expansion. TBR has seen slightly different approaches from Amazon and Google in the commercial space. Amazon, likely with Microsoft support, focuses on the office with Alexa for Business, while Google seems to be positioning its voice AI and smart speaker technology to serve as an interface for a business’s customers.

However, as with the consumer space, the use case must be proved, the skills must be ironed out, and existing commercial infrastructure must be modified to support voice assistants and smart speakers. And despite furious investment in these possibilities by the major platform players, TBR doesn’t expect to see Alexa widely adopted in the boardroom for at least another two to three years. For now, I believe smart speakers will continue to find their way into homes as a novelty or curiosity for tech-excited people and early adopters, contributing to slow but steady growth, or as an easy, cost-effective tech-based gift, driving additional bursts of increased unit sales during the holidays.

*Voice activity data includes devices that are not smart speakers, such as smartphones.

Comcast Business fuels digital transformation with its ‘Beyond Fast’ message, strategy and execution

TBR perspective

The 2018 Comcast (Nasdaq: CMCSA) Business Analyst Conference explored how Comcast Business is helping its customers go “Beyond Fast.” The story arc over the day-and-a-half gathering highlighted Comcast Business’ emphasis on how it not only equips companies with connectivity but also helps them realize the business innovation and customer experience capabilities they truly desire to grow their own businesses.

Offering the best last-mile gigabit broadband coverage in the U.S. is the foundation of Comcast Business’ strategy; however, the unit and its leadership are focused not merely on promoting accelerated data speeds but also on leveraging Comcast Business’ growing network capabilities and business-enabling portfolio to underpin and advance its customers’ digital transformation initiatives. Customer testimonials were a focal point of the event as technology executives within the sporting venue and quick-service restaurant (QSR) industries shared and extolled how Comcast Business’ solutions have helped to enhance customer experiences, improve operational efficiency and reduce costs.

Though Comcast Business’ portfolio is maturing, Comcast Business continues to innovate with significant opportunities ahead, as the unit seeks to gain market share and increase revenue from its existing solutions. Unlike its largest competitors — AT&T (NYSE: T), Verizon (NYSE: VZ) and CenturyLink (NYSE: CTL) — Comcast Business is not encumbered by legacy assets, which has enabled the company to sustain double-digit year-to-year revenue growth over the past 30 consecutive quarters. Comcast Business has the potential to take up to $60 billion in market share from its main rivals as the company targets continued growth through its broadband services and adjacent solutions in areas including managed services, SD-WAN, unified communications, security and video.

The 4 P’s of marketing – people, process, partners and platforms – emerge behind AI and compel vendors to adopt S-centric frameworks

 

digital marketing services infographic, 4 P's marketing

Market dynamics will evolve in the next 5 years, with voice and video the core conduits for trusted and tangible AI-based marketing campaigns

The digital marketing services (DMS) market will grow at a CAGR of 16.2% from 2017 to 2022, reaching $125 billion, as organizations across geographies adopt artificial intelligence (AI)-enabled, customer experience-based voice and video solutions to run outcome-based campaigns addressing business pain points beyond brand awareness. Marketing in the moment frameworks will continue to dictate the shift toward hyper-personalization as consumers’ attention becomes the new currency and creates opportunities in areas such as omnichannel delivery and intelligent operations.

The shift from brand awareness to activation and support results in four new P’s of marketing — people, process, partners and platforms — leading to data management issues and opportunities. Winning vendors can adopt “S”-centric frameworks that emphasize closing skills gaps, delivering at scale and being in sync with partners’ visions, and addressing customer data silos through the development of interoperable and secure solutions.

Portfolio and go-to-market transformation and AI solution integration will be among the levers vendors can use to capitalize on a growing DMS market. Feeding the hype of AI could be a double-edged sword if technology and services vendors cannot deliver on the promise to shift the perception of marketing from a cost center to a business value driver.

AI-based voice and video platforms will increasingly take center stage as enablers for delivering campaigns in hybrid marketing environments, helping brands better connect consumers’ offline and online professional, purchasing and social behavior data. Technology partnerships and expertise in integrating platforms such as IBM Watson, Google and Adobe Sensei in the business-to-business segment and Amazon Echo and Google Home in the business-to-consumer segment will be key to services vendors’ success. The inability of vendors to recruit and retain talent with skills in these technologies might hinder market share as vendors are unable to address tasks at speed. Lastly, within the next two years, the broad-based adoption of AI across omnichannel platforms will reduce the need for multiple vendors to support engagements, and will also result in new opportunities in intelligent marketing operations.

For more information, contact Senior Analyst Bozhidar Hristov ([email protected]).