There is undoubtedly much activity in developing the infrastructure around their core offerings, however telco operators also invest significantly in adjacent markets. In this article, we look at a few of these investment areas and the programs that operators have created to encourage innovation.
Major Investment Themes in the Telecoms World: Looking into New Markets
By Lucia Balcazar
As operators continue to invest into their core services, especially in 5G infrastructure and network virtualization, they have also been gearing up to expand their blueprint by investing into adjacent markets. This trend has been driven by the commoditisation of telco core services as well as the evolution of communication technologies. Major operators strategically invested around 40% of their capex into markets such as the Internet of Things, Virtual Reality and Artificial Intelligence.[i]
Internet of Things (IoT)
For Vodafone, IoT revenues have grown an average of 24% YoY since 2013, being the first mobile operator to pass 50M connections.[ii] In particular, Vodafone launched “V by Vodafone” in 2017, a range of IoT devices including a pet tracker, car telematics dongle, bag tracker and connected security camera for remote monitoring. The company has estimated that by 2020 there will be over 370 million consumer electronics and smart home devices capable of connecting to mobile IoT networks in the countries in which Vodafone operates, an increase from around 50 million today.[iii]
Virtual Reality (VR)
Elsewhere, SoftBank has made significant investment into Improbable Worlds and Flipkart. The former is a VR start-up focusing on cloud computing and machine learning, whilst the latter is an e-commerce firm. SoftBank invested a total of $502 million in Improbable Worlds and approximately $2.5 billion in Flipkart.
Robotics & Artificial Intelligence (AI)
SoftBank also acquired Boston Dynamics, a leading AI firm specialising in bipedal and quadruped robots, as well as the $32 billion acquisition of ARM, a microchip designer.[iv]
Other tech industries that attracted interest from operators include Cloud, Fintech, Security, and E-commerce.
The Role of Incubator Programs
Many major telecom operators have set up incubator or accelerator programs to fund start-ups in line with their existing and future business areas. For example, hub:raum is the incubator of Deutsche Telekom (DT), supporting early stage start-ups through investment and mentoring. The incubator focuses in fields such as big data, AI, smart home, robotics, and IoT. Notable success stories include UniGluko – a diabetes management system that provides digital transfer of glucose value from all patients’ glucometer into the cloud service. Other incubator and accelerator programs by operators include Vodafone Xone, Orange Fab, and Wayra by Telefonica.
Investment in these adjacent sectors not only presents new revenue opportunities, they drive the future of the communications sector. Operators will continue to invest in their core business driven by the global demand growth in mobile data and to deliver more robust networks; yet as traditional telco products and services trend towards commoditisation, the appetite to grow beyond these areas will not be satiated anytime soon.
[i] Various operator websites and annual reports in 2017. This includes an analysis of AT&T, Verizon, Vodafone, T-Mobile, Orange, amongst others.