2017 in many ways felt like an iPhone X – a lot of incremental improvement across many dimensions without any single one capturing the crowd’s attention. Yet, under the TMT-hood, advances in artificial intelligence (AI) were hard to ignore which earns AI a top spot in this year’s annual review and predictions as AI should be on every executive’s agenda for 2018.

2017 Year-End Review and Industry Predictions for 2018: Insights on the Telecoms, Media, and Technology Sector

By Nikos Andrikogiannopoulos

Continuing our long-standing tradition of writing a year-end letter, we look back at the past year and examine key events in the TMT sector in 2017 and reflect on where the industry is heading next with ten predictions for 2018.

Dear Colleague,

This past year news itself became the news. Public discussion was rich with political issues, human rights battles and large scale natural disasters. The TMT sector, as usual, remained on its steady course. Strides in artificial intelligence, NFV/SDN, 5G and cloud services showed promising results affecting the agility and speeds of future data networks. In the TMT markets, service providers and OEM vendors kept pushing for consolidation, driving scale and synergies while fiber investments reached what is probably a decade’s peak. With strong technology and economic forces in motion, it won’t be surprising if in 2018 we see some tectonic shifts.

2017: The Year That Was

Artificial Intelligence opens new frontiers

If you’ve been following the AlphaGo and AlphaGo Zero initiatives of Google’s DeepMind team, you will have noticed that we have a new Go and Chess Master on the planet. In merely a few hours, Google’s system became the most intelligent player in the world, pushing the boundary of narrow-AI. At the same time, the ‘father’ of backpropagation & deep learning, Geoff Hinton, shared in November promising results in image recognition using a new technique based on groups of neurons (capsules), resembling even closer the cognitive functions of humans. In the telecom space, intelligent self-organizing networks continued to appear. SD-WAN companies with intelligent WAN and residential WiFi are offering managed and smarter solutions. On the analytics front, CSPs have been launching initiatives to harvest real-time network data to achieve proactive and predictive fault and customer management, showing emerging signs of business intelligence. On the data center side, intelligence has been making even more progress: we read last year about Google doing smart peering (‘Espresso’) with applications becoming more aware and more intelligent of user needs and network resources. Given the adoption level of SDN inside the data center compared to service provider networks, it makes sense that a lot of network intelligence is being developed on the data center side. With everything around us becoming smarter from IoT to smart cities, 2018 is rightfully expected to be the year of AI.

M&A activity continues

The M&A activity this year was not for executives looking for quick wins. Most deals stalled for months because of regulatory intervention and those that went through extended beyond expected close dates. The big elephants were AT&T’s acquisition of TimeWarner, CenturyLink’s merge with Level 3 and the failed talks between T-Mobile and Sprint. With the AT&T-TimeWarner deal expected to keep dominating the news in 2018 given its size, it’s indicative of the slowing pace of M&A as players in the market have become large, diversified and complex to merge. T-Mobile’s shutdown of merger discussions was not, however, as disappointing for the firm since they managed on a separate deal to acquire a huge chunk of spectrum worth $8B, which they can count as a successful acquisition. Other transactions included Verizon’s acquisition of Yahoo, Zayo’s acquisition of Electric Lightwave and Windstream’s transaction with Earthlink. Currently, on the deal table, Disney has bid $66B for Fox which might include Sky if the Fox-Sky deal is successful. The acquisition themes appear consistent: vertical content plays with mobile and/or video focus; MNOs’ growing capacity driving need for fiber; profitability through scale in the competitive MNO arena; and, fiber/enterprise platform scaling.

Data Centers and CSPs are consciously uncoupling

On the flipside, this year, we saw several CSPs divest their data center assets. Verizon sold its data centers to Equinix following other service providers. The market is consolidating to a few large data center players who will be able to battle against Google, AWS, Microsoft and other IaaS companies with scale and innovation levels that make them most attractive to the end users’ application workloads.

Fiber comes back to being “location, location, location”

This year showed that there’s still a gold rush in the fiber market with strategic and financial investors showing strong appetite for well-located assets. The use cases of 5G, enterprise connectivity, cloud data centers and even long-haul transport have ignited the interest of the investment community. Despite the residential hiccups of FiOS and Google Fiber, 5G might be the key to unlocking deep fiber roll-out. Mobile traffic backhauling and increasing enterprise connectivity to cloud-based workloads makes fiber today a compelling asset to hold, with the upside of any case being the ability to serve future applications that need ultra-high throughput and/or low-latency. The use cases for building fiber are oftentimes aided by cost reduction initiatives like the decommissioning of aging fixed line services and their replacement with new, better, fiber-based products.

Network virtualization is going for a run outside the data center

Telefonica, Deutsche Telekom, AT&T, Verizon, Sprint, NTT DoCoMo, China Unicom among others have been steadily contributing to NFV progress across standardization bodies and forums (e.g. ETSI, ONAP, ONF, etc.). AT&T started 2017 with a stated ambition of virtualizing 75% of its network by 2020. Telefonica stated that in the “short term” NFV will power 20% of its mobile user plane traffic and 50% of its control plane traffic. Vodafone picked Huawei to support its global NFV/SDN deployment. Alliances were formed around NFV and ONAP got a lot of new members and even deployed proof-of-concept projects. Verizon and other folks from the industry rightfully focused on the enterprise virtualization piece which seems to be making strides with managed services becoming more and more virtualized. In the SD-WAN space, talks around SD-security and SD-WAN 2.0 have been ongoing. At the same time, Cartesian’s network virtualization report highlighted the challenges of operationalizing NFV. Although the term ‘DevOps’ has become commonplace by now, the more complicated use cases of NFV scare industry stakeholders with the level of restructuring that is required – of the processes, roles and technology – for them to walk safely into the new virtualized way of designing, ‘committing’ and running networks.

Regulatory – the good, the bad, and the ugly

Regulatory bodies around the world have gotten increasingly concerned and engaged in discussions around cyberattacks, security, radio interference and all issues that arise from our increasingly connected world. In June, consumers welcomed the EC “Roam Like at Home” regulation that came into effect in Europe whereby mobile service providers can no longer apply retail surcharges on roaming within the EU and EEA. At the time of writing, net neutrality in the US has been repealed with an FCC decision of 3-2 votes. If history holds any lesson for us, it is that despite the current public outrage, we have to wait and see how the situation shapes up. FCC’s decision is a departure from other regions that have shown no sign of repealing their net neutrality rules. A lot of economic forces including ISPs, big internet companies, VCs and governments will start driving towards an equilibrium which we can later assess whether it will be beneficial or harmful to society and economic development.

Not Forgetting…

2017 also pointed to developments that we will be seeing more news of in the future:

IoT world is getting into the low-power LTE era

Low Power Wide Area Network (LPWAN) has been an emerging area tied to the deployment plans of carriers for LTE for Machines (LTE-M) combined with narrow-band IoT (NB-IoT). Two noticeable organizations have been developing technology in this LPWAN space, LoRa and SigFox, trying both to develop modulation schemes and communication protocols as well as alliances to drive their technologies to adoption.

5G Networks not yet standardized – but who wants to be last?

It’s a well-known industry fact that our dreams of “next gen” networks inevitably take longer to realize than expected. 5G appears to be no exception. The industry has long been excited about the prospects of low-millisecond latencies, higher bandwidth, better modulation and antennas. Yet, the technology remained in 2017 largely inside OEM’s labs under proprietary implementations, with only few MNOs like Verizon having performed fixed wireless trials in select markets. 3GPP is expected to finalize standardization in mid-2018 and with that in mind everyone wants to make sure they have a front seat at the show. In December, Verizon signed a 5-year deal with Ericsson starting with pre-5G equipment and continuing with select market deployments. AT&T has also been very strategic around 5G with its spectrum holdings and fiber assets placing the company in an advantageous position. AT&T’s Mexico activity as well has raised a few eyebrows over the past years and its influence in the 4G/5G plans of that country is not to be neglected. On the European side, EU telecom ministers agreed on 5G network roadmap and Ericsson closed a deal to build Deutsche Telekom’s “5G-ready” network.

Security risks complacency

The fact that we all feel comfortable with the words ‘data breach’ on the headlines and that life continues shortly afterwards does not make this key theme from 2017 less scary. Uber, Equifax and a few service providers were all in the news either because of exposing customer sensitive information at some level. The discovered KRACK vulnerability in the key exchange system of WAP2 exposed to the public how wide vulnerabilities can be, with all major OEM vendors having to update their access points. In 2018, the General Data Protection Regulation (GDPR) will come into force across the EU, replacing previous regulation and harmonizing data protection rules. All firms that serve EU citizens need to take note, else risk hefty fines – a maximum of €20M or 4% of revenue - for infringement. Security needs to evolve and leverage the advances in AI, evolve from rules-based to more intelligent ways of dealing with dynamically evolving, sophisticated attacks from individuals, groups or even government-sponsored entities.

2017 Prediction Review

In December 2016, we made ten predictions for 2017 – here’s how we did:

Prediction for 2017

Did It Happen?

5G will come early – in the form of ultra-fast fixed wireless

 

YES

In 2017, AT&T and Verizon led the charge for early 5G fixed wireless development – AT&T currently has trials in Austin and Indianapolis, while Verizon has revealed that trials in 11 different cities are doing better than expected. Commercial availability of 5G fixed wireless in 2018 looks on track—Verizon has confirmed their roadmap and announced the possibility of mobile 5G by 2019. In Europe, Three announced it would cover 40% of the population of the United Kingdom with 5G fixed wireless within three years. Meanwhile, T-Mobile has already brought their 600MHz spectrum online in record speeds to parts of the US, and is deploying small cells across the US that should easily convert the network to 5G once standards are finalized.

Partnerships and white-labeled platforms will be the path forward for most Pay TV providers

  NO

No major deals have come out of the 2017 year – if anything, it’s been mostly a year of in-house innovation, as the new entrants joined the over-the-top multichannel fray (Google, Hulu, soon Verizon) and existing providers expanded their channel line-ups and improved their functionality and usability. Altice, meanwhile, announced the launch of its internally developed “The Box” in its US properties, demonstrating the benefits of international scale. An interesting development is the emergence of Amazon Prime as a primary channel for standalone OTT services like HBO Now and Showtime OTT.

Major sports will go over-the-top

 

THERE'S MOVEMENT

Over-the-top providers and sports leagues continued their dalliance, but no major game-changes came out of 2017. The NFL sold non-exclusive rights to Thursday night games to Amazon, and Facebook started streaming one Major League Baseball game a week, but performance still lags compared to traditional broadcasting. CBS, however, has hinted at a streaming sports service launching sometime in 2018 – nothing concrete yet. Sky was outbid by Amazon for the UK rights on the ATP World Tour Tennis and everyone is expecting Sky to be ready to pay a premium next year when the English Premiership (soccer) rights are up for auction.

Operators with a traditionally conservative view towards fiber build-out will get more aggressive

 

YES

Verizon announced an unprecedented fiber purchasing agreement with Corning worth $1.1 billion, although it’s not clear whether that is due to greatly increased demand or concern over industry-wide supply constraints and a desire to lock in favorable pricing. Altice announced an IPO to help raise funds for its large-scale FTTH build-out (announced in 2016), while Bell Canada, who had already been upgrading major portions of its network to FTTH, announced a CAD$854M project to expand fiber to 1 million-plus homes and businesses in greater Montreal. SNL Kagan sees US cable plant spending reaching an all-time peak of $3.7 billion in 2017—more than double the average from 2010 to 2013—in part due to Comcast overbuilding business areas with high-capacity fiber. On the European side, Openreach has laid out its plan to pass 10M premises with FTTP by 2025 while Vodafone has been in talks with Openreach to co-invest in the network.

Expect super-sized consolidation in the network equipment market

 

NOT YET

Broadcom’s initial $130B bid for Qualcomm is now turning into a hostile bid with the verdict out in March 2018. On the OEM side, rumors existed of a merger between Ericsson and Cisco, Nokia and Juniper earlier in the year but nothing more than that. All the big OEM vendors continue to struggle with losses and mild stock performance.

Home WiFi mesh will be commercialized

  YES

Following the launch of Google WiFi in late 2016, BT launched BT Whole Home, the first WiFi mesh product from a British service provider. In the US, Comcast continued to expand its product line for controlling home WiFi, launching the xFi app for managing WiFi networks and unveiling new WiFi “pods” that can combine into a mesh. Its investment in Plume and the expected integration of mesh WiFi into its line of Gigabit routers marks this prophecy as fulfilled.

Augmented reality, not virtual reality, takes off

 

COMING SOON

We were partially correct, in that VR didn’t take off. However, AR has yet to have a big impact. The iPhone X is likely the first phone that brings AR to the foreground. Some interesting gaming applications leveraging AR and with the SDK in the hands of the strong Apple dev community, more exciting use cases are expected to come. On the neighboring VR side, Oculus’ Rift Core 2.0 update which is being launched is brining Windows desktop inside the VR world.

Wholesale data centers will consolidate in response to the growing buyer power of hypercloud providers

  YES

CConsolidation happened, although not for all the reasons we said. Data center REIT stocks hit all-time highs on the back of record demand from the Internet giants, but that didn’t stop Digital Realty, the biggest public wholesale data center operator, from buying Dupont Fabros to get better access to the hyperscale cloud market. Meanwhile, Peak10 contributed to the consolidation of telco data center assets, buying ViaWest from Canada’s Shaw Communications, and positioning itself as one of the largest data center providers in Tier 2 markets. Digital Bridge continued its quiet empire-building, buying major data centers in Silicon Valley (Vantage Data Centers), Dallas (Stream), Salt Lake City (C7), Cleveland and Pittsburgh (both from 365 Data Centers).

IoT-based cyber-attacks will lead to calls to regulate

 

    

ALMOST

There were no major IoT attacks this year although the KRACK vulnerability exposed a new weakness in the connected ecosystem.  The Federal Trade Commission offered non-binding suggestions to IoT manufacturers on best practices for notifying customers about security issues. But vendors on both sides of the Atlantic looked to get ahead of the game by calling for more-or-less voluntary industry-wide IoT security standards. The group includes Microsoft, three European semiconductor manufacturers (Infineon, NXP and STMicroelectronics) and the newly formed IoT Cybersecurity Alliance (AT&T, IBM, Nokia, Palo Alto Networks, Symantec and Trustonic).

Software-Defined Network (SDN) and Network Function Virtualization (NFV) will grow… slowly

 

YES

It remains hard to separate the substance from the hype in a market where everyone wants to lead—but nobody wants to cannibalize their existing revenues. The boldest announcement came from NTT that it has launched an SD-WAN product available in more than 190 countries – which will surely lead to a slew of similar announcements from global telcos in the coming months. Network providers with limited footprints like Windstream, Sprint and Masergy launched or expanded SD-WAN products, while SDN pioneer AT&T signaled a “wait-and-see” approach on SD-WAN. Comcast, meanwhile, was the first of the U.S. cable operators to trial SD-WAN. Both Verizon and Orange have started virtual CPE (vCPE) trials, while BT announced plans to build on its iWAN service with an SD-WAN product in early 2017. Cartesian’s NFV survey report also showed that industry stakeholders have lots of difficulties managing change in their networks particularly where the line between Network & IT gets blurred and data center practices must become part of legacy telecom operations.

 

Predictions for 2018

Looking forward to the year ahead, here are our predictions for 2018:

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NFV will show traction in the wireline space

In 2018, we believe we’ll see a major wireline service provider demonstrating a functional NFV platform, in the same way that ETSI standards imagined it a few years back. The work that ONAP is doing and some early signs from Tier 1 operators hint towards that direction.

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AI and Machine Learning will increasingly play a bigger role in TMT

Outside the network itself, CSPs can use AI in their OSS/BSS management to realize efficiencies from the management of the applications that till recently required an army of operations crew. Consistent with our belief that AI will creep first into the data center, OSS/BSS might be the entry point for CSPs to leverage AI in their organizations. Smart call centers, self-care apps, virtual assistants all belong in that group of early AI use cases, aiming to make operations more efficient and potentially raise margins.

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FTTH networks will see major new buildouts

Analysts predict that FTTH in Asia will be picking up even more in 2018. Seeing the fiber service provider acquisitions in the US and the supporting 5G plans, FTTH will be coming back with service providers pushing more fiber than before. We predict that some major FTTH announcements will take place in 2018.

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Pre-5G networks will see their first trial customers

With fiber deeper into the networks and pre-5G OEM agreements in place, we’ll see in the new year pilot runs on pre-5G networks demonstrating the various benefits of higher speed, low latency and ability to host many low bitrate devices. Smart cities might become the testbed for those networks showing IoT evolution in ways that the public eye has not yet perceived.

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Regulation will take a center position in the public discussion

Net neutrality has not been in the public eye as much as people would expect in the pre-Christmas period, we predict it will come back again in 2018. Big internet providers, Netflix, Amazon, Facebook will take more public positions as people will worry more about the increasing power and control over the Internet, the news and the public opinion. We predict network neutrality will come back in different shape and forms to reflect a push for freedom of expression and choice.

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Security and encryption will improve leveraging AI

A well-known application of AI is in turning rules-based fraud and DDoS prevention systems into intelligent ones. We predict we’ll see more of that in the new year with new applications enriching the security portfolio of service providers and enterprises.

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Original OTT Live content will be a Hollywood trend

As YouTube Live and Facebook LIVE become more prevalent, we’ll see the first major live TV shows appearing on the platforms. Netflix and Amazon are likely to move towards Live and it remains to be seen who will initiate the original Live content creation. Facebook and YouTube have an unfair advantage in this game as their platforms already have content creators eager to stream live content, but the professional Live hosts are today only present as a complement to traditional broadcasting. Let’s see if 2018 will enhance the quality of Live streaming.

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Smart cities and transportation will show signs of transformation

As IoT matures in terms of protocols, architecture, supporting platforms and hardware, we expect 2018 to see major deployments of IoT related systems. Tesla Model 3s will start roaming the streets ready to make autonomous driving a reality and transform the ride sharing industry. There will be major breakthroughs in transportation at a time when Uber is getting ready organizationally for those changes.

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Data centers will see even bigger transactions

With rumors of more data centers coming to market in 2018 and given the level of 2017 activity, we expect data centers to continue to attract investor interest. Some major transactions will happen as strategic players try to achieve hyper-scale.

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AR will capture the consumer crowd’s enthusiasm

We started this year end letter with the iPhone X and it’s only fair to close it with a prediction on AR. Apple, Amazon, Microsoft will unlock in 2018 some amazing use cases around AR. The processing speeds and the technology are at the level that make AR “indistinguishable from magic” in Steve Jobs’ words. This we predict will be the most thrilling consumer-based topic in 2018. Maybe January 2018’s CES expo might prove this one early in the new year.

 

Do you agree with our predictions? What do you think 2018 will bring to the communications sector? Share your comments on our Year-End Letter with us <here>.


Sources: IDC, Synergy Research, SNL Kagan, Ovum, FierceWireless, FierceTelecom, FierceCable, Reuters, FCC, Ofcom, Crunchbase, Forbes, Ericsson, National Venture Capital Association, operator websites