Friday, 20 January 2017

Review of 2016: The big 'D'

By Nick Wood, Total Telecom
Tuesday 20 December 16

Disruption, that overused word, showed its dark side in a year marked by political upsets and economic uncertainty.

The telecoms industry has been using the word "disruption" with such frequency over the last 15 years that it has almost lost all meaning. However, the events of 2016 showed that in fact, disruption is only just getting properly started, and it has a dark side too. At no point was this more apparent than when Donald Trump shocked the world by winning the U.S. election, and the alleged roles that blanket media coverage, fake news disseminated via Facebook, and supposed cyber attacks carried out by Russia, might have played in his victory. "Last night, we were reminded of a darker side to this disruption," said Bryan Cantrill, CTO of Samsung-owned virtualisation specialist Joyent, in a presentation at Structure San Francisco, the morning after the election. "Last night, we learned that disruption isn't only for economics: democracy affords a kind of political disruption." He attributed Trump's victory in part to Silicon Valley's culture, which on the one hand is an exciting culture because it is revolutionising industries, but on the other hand, it is also causing distress to many, as human jobs begin to make way for software and machines. Indeed, until recently, when disruption was discussed in technology and telecoms circles, it was talked of in the context of new players disrupting individual sectors of the market, sometimes claiming one or two high-profile victims along the way, for example: - Amazon disrupted book-selling, followed by retail, and enterprise IT - Napster disrupted music - The Web disrupted publishing - Skype disrupted voice - YouTube disrupted video - The iPhone disrupted handsets - WhatsApp disrupted messaging - Uber disrupted taxis - 5G will disrupt just about everything…

The telecoms industry has been using the word "disruption" with such frequency over the last 15 years that it has almost lost all meaning. However, the events of 2016 showed that in fact, disruption is only just getting properly started, and it has a dark side too.

At no point was this more apparent than when Donald Trump shocked the world by winning the U.S. election, and the alleged roles that blanket media coverage, fake news disseminated via Facebook, and supposed cyber attacks carried out by Russia, might have played in his victory.

"Last night, we were reminded of a darker side to this disruption," said Bryan Cantrill, CTO of Samsung-owned virtualisation specialist Joyent, in a presentation at Structure San Francisco, the morning after the election. "Last night, we learned that disruption isn't only for economics: democracy affords a kind of political disruption."

He attributed Trump's victory in part to Silicon Valley's culture, which on the one hand is an exciting culture because it is revolutionising industries, but on the other hand, it is also causing distress to many, as human jobs begin to make way for software and machines.

Indeed, until recently, when disruption was discussed in technology and telecoms circles, it was talked of in the context of new players disrupting individual sectors of the market, sometimes claiming one or two high-profile victims along the way, for example:

- Amazon disrupted book-selling, followed by retail, and enterprise IT
- Napster disrupted music
- The Web disrupted publishing
- Skype disrupted voice
- YouTube disrupted video
- The iPhone disrupted handsets
- WhatsApp disrupted messaging
- Uber disrupted taxis
- 5G will disrupt just about everything, if you believe the hype

And so-on.

Casualties, such as family-owned brick-and-mortar stores, long-running publications, pioneering handset makers, etc., were mourned briefly, but ultimately depicted as failing to evolve with the times.

In late 2010, the disruptive forces ripping through the private sector entered public life with the Arab Spring. Social media and the Internet became channels for coordinating action, gathering support, and citizen journalism.

In these contexts, disruption was generally talked about in positive terms: a uniting force of progress that promised to emancipate and empower.

In 2016 though, the forces of disruption gave voice and a platform to those who seek to highlight division, marginalise minorities, and mislead the masses.

The same tools that gave hope to people battling oppression were this year exploited by budding oppressors who furthered their causes by taking an undercurrent of anxiety about globalisation and jobs lost to technology, and whipping it up into a tidal wave of vitriol directed against various bogeymen, namely 'elites', 'the establishment', 'experts', and of course, immigrants.

If all that sounds a bit melodramatic, you're probably not taking it seriously enough.

"Disruption is now engulfing the broader economy. It's accelerating – we cannot put the genie back in the bottle," said Cantrill, in his presentation. "We ignore the human toll of this change at our own peril."

Jio genesis
In Total Telecom's corner of the industry, by far the most disruptive individual player this year was India's Reliance Jio Infocomm.

After making 4G services available for free to employees in late 2015, no one predicted that the Mukesh Ambani-owned telco would do anything other than a fairly standard commercial launch at some point in 2016.

Even that started to appear unlikely, as months passed by and Jio seemed no closer to a fully-fledged launch; instead it slowly expanded the size of its free trial under the auspices of a network-testing programme to include partners and associates.

Vodafone CEO Vittorio Colao said at a press briefing at Mobile World Congress that his Indian unit was ready to compete with Jio, describing it as "just another powerful one (rival).

"We will be as ready as we can to welcome them," he said at the time.

Sunil Mittal, founder of India's biggest mobile operator Bharti Airtel, sounded more cautious in March, when he predicted that Jio's launch would ignite another price war in India, bringing further consolidation to the market.

Then, in September, Jio dropped a bombshell by offering free nationwide voice and data services to all-comers until the end of the year, calling it the "Jio Welcome Offer".

Jio's rivals cried foul as their interconnection points were flooded with incoming calls from new Jio customers enthusiastically availing themselves of the free calls. They argued that Jio was violating regulations that restrict the duration of special offers to 90 days.

Reliance Jio believes that it can stay within the rules by simply extending the same special offer, but under a new name.

So the networking-testing programme became the 90-day, Jio Welcome Offer, then at the beginning of December, Ambani announced that the Jio Welcome Offer would be replaced in January by the "Jio Happy New Year Offer", a new 90-day promotion offering free service from 1 January 2017 until the end of March, albeit with a tweaked fair usage policy (FUP) aimed at curbing the excesses of the heaviest data users.

Bharti Airtel founder Mittal's prediction was spot-on, and another price war ensued. In September, his company started offering free unlimited 4G data for 90 days. Later in the year, Bharti Airtel overhauled its tariffs to include unlimited calls and larger 4G data allowances.

India's third-largest mobile operator by subscribers, Idea Cellular, followed suit, offering unlimited calls and adding more data to some of its packages too.

Number two player Vodafone India doubled the amount of data on some of its Vodafone Red plans.

Vodafone, which in February was prepared for the launch of India's newest entrant, had by November written down the value of Vodafone India by €5 billion, citing the intensifying competition wrought by Jio.

Meanwhile, Jio's inexorable march continues: the operator signed up 52 million subscribers during the first 83 days of commercial operation.

Mukesh Ambani did not get to be India's richest man by giving everything away for free, so there must surely come a point where Jio has to start charging for service. Nonetheless, if 2017 begins similarly to how 2016 has ended, then any operator in India that isn't Reliance Jio Infocomm is in for a bumpy ride.

No business like showbusiness
While Reliance Jio was disrupting India with outrageous offers, telcos in other parts of the world continued their efforts to woo consumers with eye-catching content.

The U.S. stood out, as AT&T, T-Mobile US, and Verizon ramped up their video strategies.

T-Mobile continued to add video services to its zero-rated Binge On service, finally signing up YouTube in March. However, it had to diffuse a fierce backlash against its practice of lowering the quality of all video watched by Binge On users. It also had to defend itself against accusations that Binge On undermines the principles of net neutrality by encouraging consumers to favour some video providers over others (more on net neutrality coming up, by the way).

Verizon's content efforts yielded mixed results in 2016. After launching its Go90 mobile video-streaming service towards the end of 2015, the telco ramped up its efforts to fill it with exciting shows, forming a joint venture with publishing giant Hearst, buying a stake in Dreamworks' online video company AmesomenessTV, and acquiring pop-culture portal Complex. Similarly to T-Mobile's Binge On, Verizon zero-rated Go90, which meant customers could access the service without it counting against their data allowance.

However, the early reviews of Go90 were generally not favourable, and Verizon CEO Lowell McAdam admitted at a J.P Morgan conference in May that the company set expectations of Go90 a little too high.

Verizon has also had to contend with the debacle that is its acquisition of Yahoo's core Internet business. The $4.83 billion deal was struck in July, but in September, Yahoo revealed that it had been the victim of a state-sponsored cyber attack in 2014 that had compromised the personal information of 500 million users.

After initially denying any knowledge of the attack prior to the Verizon deal, it emerged in November that certain people in the company became aware of what happened in late 2014.

Then in December, Yahoo revealed it was the victim of another attack in August 2013 during which the profile details of more than 1 billion users were stolen.

In public, Verizon is pushing ahead with the acquisition, but speculation is rife that it will either seek to lower the purchase price or walk away from Yahoo altogether.

AT&T, fresh from acquiring DirecTV, revealed in March plans to launch multiple mobile video-streaming services. Called DirecTV Now, FreeVIEW, and Fullscreen, they aim to cater to die-hard TV watchers and casual viewers alike, and were officially launched in November. AT&T followed its rivals in allowing customers to access DirecTV Now without it counting against their data allowance.

AT&T in October doubled down on its commitment to content, agreeing an $85.4 billion deal to acquire Time Warner, owner of HBO, Warner Bros. Entertainment, and media conglomerate Turner.

That might prove a deal too far for the regulators, who spent more than a year evaluating AT&T's $48.5 billion acquisition of DirecTV.

However, with an unpredictable, egomaniacal, misogynistic demagogue set to be sworn in as U.S. president in January, it is anyone's guess as to what might actually happen here.

Elsewhere, U.K.-based Vodafone made big strides down the path to becoming a major convergent player.

In February, it agreed to merge its Dutch mobile operation with Liberty Global-owned cableco Ziggo, creating a powerful converged services provider equipped to take on incumbent KPN. The deal is still awaiting EU approval. In a bid to win over competition commissioner Margrethe Vestager, Vodafone agreed to sell its Dutch fixed-line operation to local rival T-Mobile.

On the opposite side of the planet, Vodafone in June agreed a NZ$3.44 billion tie-up with Sky New Zealand, bringing together the country's biggest mobile operator and its biggest pay TV provider.

Unsurprisingly the proposed merger caught the attention of New Zealand's competition watchdog, the Commerce Commission. It is currently evaluating the deal's potential impact on competition in the telco and TV markets; a decision is due by 23 February.

Meanwhile, in its home market, Vodafone is still thought to be preparing to launch a TV service, a move that would ramp up the competition with U.K. incumbent BT – which completed its acquisition of mobile operator EE in January – as well as Virgin Media, and Sky, which unveiled its MVNO operation in November, and agreed to be taken over by Rupert Murdoch-owned media giant 21st Century Fox in December.

Stick it in neutral
As the lines between telecoms and media became ever more blurred during 2016, the treatment by telcos of traffic travelling across their networks was subject to even closer scrutiny.

In 2015, it was the U.S. Federal Communications Commission (FCC) that got to grips with net neutrality; in 2016, it was Europe's turn, as the Body of European Regulators for Electronic Communications (BEREC) turned its attention to implementing the European Commission's net neutrality legislation.

A consultation launched in June garnered more than half a million responses, with operators on one side arguing that the proposals created uncertainty, and consumer advocates on the other warning that they contained loopholes that could be exploited by telcos to the detriment of choice and innovation.

Under the final guidelines, published in late August, BEREC said telcos should still be allowed to provide so-called 'specialised services', provided such a service is deemed objectively necessary, does not constitute an alternative for a generic Internet access service (IAS), and does not degrade the performance of the public Internet. Examples of specialised services include VoLTE, linear IPTV, and mobile network slicing.

Telcos are also permitted to carry out reasonable traffic management based on the different quality of service (QoS) requirements of various categories of Internet traffic. Traffic must not be managed based on commercial interests.

Zero-rating will effectively be judged on a case-by-case basis to ensure the practice does not harm competition or choice.

Unsurprisingly, the reaction to the final recommendations was mixed, with open Internet cheerleaders congratulating BEREC, and some in the telecoms industry criticising the regulatory body for being unnecessarily prescriptive.

2017 promises to be an interesting year with regard to net neutrality in Europe, as national telco regulators work out the practicalities of enforcing the new legislation, and as telcos – keen to win market share by offering compelling content – put them to the test.

Block-oholic
Finally, we couldn't round up this 2016 highlights reel without mentioning 3UK parent CK Hutchison's unsuccessful attempt to acquire O2.

The European Commission blocked the £10.25 billion deal in May, leading to a wave of speculation about O2's future. Eventually it seemed that O2's parent Telefonica had settled on an IPO of its U.K. unit; however, that idea was put on the back burner due to market volatility and economic uncertainty in the wake of the U.K.'s EU referendum result.

That was in October. With the world still adjusting to November's shock U.S. election result and the reality of Donald Trump leading the world's biggest economy, it is anyone's guess as to what 2017 has in store for telecoms, or any other industry, for that matter.

Whatever happens, it certainly won't be dull.

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