by John Strand, Founder and CEO of Strand Consult

Introduction:

2024 is poised to be an important year as more than half of the world’s population is poised to vote. Elections create clarity and regime change. They are pivotal because they signal national policy direction for industry and society, not the least being mobile telecom stakeholders. Following are Strand Consult’s hard thoughts on the year ahead.  For some holiday mirth and an insightful summary of the challenges facing the telecom industry in 2024, listen to the Telecoms.com podcast featuring telecom legend Denis O’Brien from Digicel in conversation with editors Scott Bicheno (Telecoms.com) and Iain Morris (Light Reading.com).

Geopolitics

2024 is an election year, and more than half of the world’s population are scheduled to vote in 2024. Four critical elections will be held in the Free World: Taiwan on January 23; General elections in India in April-May; the European Parliament on 6 to 9 June; and the US Presidential election on November 5. Separately, a press release notes that a Russian presidential election will be held on 15 to 17 March, and Vladimir Putin will get a fifth term. China canceled free elections again in 2024.

There is limited policymaking in countries during election years, so the policy action is likely to be in the countries in off-election years. However, elections may slow needed action to address conflicts in Ukraine and the Middle East.

Moreover, China continues to partner with dictators, and grow more aggressive. General Secretary Xi Jinping faces limited opposition and critical press. However, many see his reign as a disaster including the mishandling of Covid, the souring economy, and the lost goodwill with other nations, particularly as XI cozies up to Russia’s Putin, North Korea’s Kim Jong Un, and Iran’s Hassan Rouhani.

There still remain mobile telecom operators in the free world which espouse democratic values and yet partner with China’s Huawei and ZTE. The operators reject the claim of security risk and dismiss or downplay the demonstrated control Xi and the party exact on China’s enterprises. The policy secure networks in US and EU has nothing to do with trade, but rather reflects the reality that China has changed fundamentally in the last decade.

2024 will also show the results of the implementation of the EU 5G security toolbox with increased attention on trusted versus non-trusted operators, not just vendors. Nations outside the EU will be inspired by the diplomatic EU approach.

Misguided Regulation

When Strand Consult launched almost 30 years ago, “regulation” had little to no impact on the industry. There were no internet activists trolling telecom regulatory authorities. Today, however, regulation can have a huge impact for both good and ill.

A decade ago Strand Consult published the report The EU’s Broadband and Telecom policy is not working. Europe is falling further behind the US documenting how US operators invested twice as much in infrastructure as their European counterparts over a long period. That trend is ongoing. The US still invests at twice the rate of the EU; the EU is further behind, and the EU gap to close the digital divide has widened from €150 billion to €274 billion.

2024 will be another year in which the EU will publish reports showing that Europe is behind. And yet, European policymakers continue to reject solutions like in-country consolidation which could help firms improve their business case for growth and investment and could ultimately improve the dismal picture for the EU.

Meanwhile the United States, India, and many African nations have completed successful consolidations. The operating results of most telecom firms in these countries are better than those in Europe. EU policymakers accept the status quo of ever-worsening returns and a growing investment deficit.

When it comes to creating better conditions for infrastructure deployment, Europe is also far behind other parts of the world. The only exception in the EU is Denmark, where Strand Consult’s research which started 10 years ago, has made it easier and significantly cheaper to roll out infrastructure in Denmark.

The EU Parliament’s Gigabit Infrastructure Act introduced this year promises faster rollout of gigabit-capable connectivity. It is a solution that helps fixed infrastructure providers. The question remains as to how many years it takes before implementation at the local level. Strand Consult does not expect to see this the effect of this Act in 2024, or even for some years, given rising interest rates. Simply put, the EU bill is too little and about 15 years too late.

The EU’s Digital Markets Act (DMA) proposes to regulate online content and social media platforms. The big question is how to implement it in practice. It will be interesting to see whether Big Tech will censor EU policymakers. There is a similar hubris with the EU’s Artificial Intelligence Act (AI Act) and how it promises “transparency” of algorithms. It’s hard to believe that any European official has the skills to make such an assessment.  As AI business models have yet to be proven, the regulation seems premature. No bureaucrat can say whether Google, Microsoft, AWS, ChatGPT, or some other entity has the better AI solution.

Chips, chips, and Chinese chips

All chips matter – whether NVIDIA’s state of the art chips for AI or workhorse memory chips. This has only been heightened by the supply chain shortages driven by Covid-19 and security challenges. Russia, Iran, North Korea and China want advanced chips used for military purposes. Free world nations have imposed restrictions on chips for certain military users; this could only work because firms in the US, Netherlands, Korea, Japan, and Taiwan have the relevant IP.

China is heavily dependent on this advanced chip technology, and indeed firms of all kinds try to work around these rules. Some companies even break them with the expectation that they won’t be caught or fined (See Applied Materials). China has tried for 40 years to get a leadership position in advanced chips with limited success. However, though size and scale, China can impact global chip supply with currency manipulation and by flooding the market with low-end products.

In 2024 China will bombard the media with propaganda saying that if they can’t get an advanced supply of chips, then they will make it themselves. This should be taken with a grain of salt. Strand Consult describes Huawei’s challenges given chip restrictions and its various workarounds and creative messaging.  Huawei is diversifying its business and doing an IBM-style transformation, going from a hardware company to a software/service one. It could make Huawei less dependent on its own hardware.

Chip policy will stay salient in 2024.

OpenRAN vs. 3GPP 5G RAN

Strand Consult’s predictions about OpenRAN have been spot on, revealing the stories to be the greater part of hype rather than market value. OpenRAN revenue as a share of the mobile infrastructure market is miniscule, but OpenRAN takes an outsized share of press and policymaker attention owing to Washington policy spin and Hollywood storytelling.

The party version of OpenRAN is to break incumbent vendor lock-in, reduce costs, promote innovation, and simplify network deployment and upgrade. This approach has gained attention and support from some telecommunications industry players, standardization bodies, and regulatory authorities to enhance competition and accelerate the development of 5G and beyond. However compelling a storyline, the reality is that OpenRAN does not provide a meaningful technical and commercial alternative to existing RAN players Huawei, Ericsson, Nokia, ZTE and Samsung.

In other words, you can’t put a hodge podge of virtual elements in a 1:1 matchup for existing RAN solutions. There are a few one-off OpenRAN solutions, but these are sideshows. There are proprietary RAN solutions that can connect to different interfaces. OpenRAN has the same function as a USB cable when connecting an iPhone with a Windows PC. With the new OpenRAN specifications launched in Osaka this summer, it is equivalent to going from using a USB-A to a lightning cable to using a USB-C to a USB-C cable.

Of the 200 3GPP/5G networks deployed globally, just three could be classified as OpenRAN. Of the install base of 5G RAN base stations, OpenRAN has about 1 percent market share of the install 5G base.

2024 could see the O-RAN Alliance folded into 3GPP. Or it could be pushed to 2025. 3GPP already works with many open interfaces, and this will drive the O-RAN Alliance to dismantle itself. The key stumbling block to OpenRAN implementation is operators themselves; they don’t want more complexity in networks. There is still value to the one-stop shop, as AT&T just demonstrated with its 5-year, $14 billion deal with Ericsson.

Business models

Over the last 25 years, the mobile telecom industry has moved from selling volume-based traffic to flat rate, all you can eat models. This has been driven for a variety of reasons. However, we predict 2024 will mark a shift with more flexibility at the high and low end of the market, read high value premium service for gamers and packages with bespoke services for the budget market.

Something’s gotta give. Internet adoption has stalled with 2.6 billion people globally offline for lack of access and affordability. Interest rates are rising, and average revenue per user (ARPU) is falling. Alternatively, we could see some nations allow needed in-market consolidation.

Operators have tried and failed to launch new platforms (think Orange World, Vodafone Live, GSMA’s OneAPI). In the year 2000, there was a 3G dream to double ARPU, from €36 to €72 Euro. Today ARPU is at or below €14 in many European countries. OTT solutions like Skype and WhatApp have proven more successful. Hence Strand Consult is not optimistic for GSMA’s Open Gateway in 2024.

For a deep dive on the state the mobile operators today, read Strand Consult’s latest research note Has the iPhone improved the mobile operators’ business case? which revisits Strand Consult’s groundbreaking report.

Operators have four key challenges:

1. Regulation which prevents business model innovation and competition with OTTs
2. Competition with other operators
3. Customer budget constraint
4. Operators’ lack of creativity, innovation, product development, strategy etc.

Connectivity may be the most compelling service on this earth. Just turn off the internet to a 9-year-old boy’s iPhone. The problem is that telecommunications providers have not succeeded to monetize sufficiently the value they provide. Ironically connectivity is increasingly valuable, yet its unit price continues to fall, and consumers expect greater value at a ever falling price point.

Broadband cost recovery and fair share

2024 will likely see the reboot of the Free Ride Prevention Act in South Korea, as firms like Google’s Alphabet which devour more than a quarter of the nation’s bandwidth, refuse to come to the table to negotiate. There is also likely to be progress in the USA, India, and Brazil where proceedings are underway, among other countries. Given recent court cases proving that Big Tech pays for placement, the arguments against fair share have been demolished. Moreover, the court cases have documented systematic Big Tech strong-arming, if not abuse of market power. Expect Big Tech to be more open to dealmaking in lieu of being regulated. Check out Strand Consult’s Global Research Project for Broadband Cost Recovery, Affordability, and Fair Share for more information.

Satellite Industry: Musk vs. Bezos

2024 will see more focus on the use of the low earth orbit (LEO) satellites. The fight between Elon Musk (Starlink) and Jeff Bezos (Kuiper) overshadows the big picture. Musk’s Starlink is lightyear’s ahead of Bezos’ Kuiper and already has 5,420 satellites orbiting the Earth; Kuiper has just two satellites. Bezos and Musk share the same dream; the difference is that Musk has already delivered. Bezos has opened his first satellite burger bar. Musk owns the interstellar McDonald’s.

Starlink has first-mover advantage and some lock-in tech dependence. It has access to cheap lifting capacity to get its satellites into space and to operate ground stations. Even with the FCC’s partisan cancelling of $886 million in subsidies (which appears to be a punishment for Musk buying Twitter and not towing the progressive party line), the company is still likely to succeed as it thrives on overcoming adversity and challenge. Satellite is here to stay as a bona fide broadband technology, and 2024 will only make that clearer.

Wrap up

As some 4 billion people go to the polls in 2024, some important policy may be put on hold, and broadband shortfalls will remain. At the same time, voters have a valuable opportunity to signal a change in leadership and direction. However, many governments will promote policy and legislation to improve access to 5G and broadband.

Rising interest rates will have a negative impact on investment. Fiber will be hit harder than mobile, and emerging markets will have a tougher time than the developed world.

While we don’t expect a business model revolution, we expect many operators to increase prices for connectivity. And indeed, many nations will further their broadband cost recovery and fair share policy solutions to improve access and affordability.

We also predict management cleanup. CEOs who have not delivered will be let go. Consider Vodafone which was Europe’s most capitalized company in year 2000 with well over $300 billion; it has shrunk to $24 billion today. Its main success during this period was to divest Verizon in USA. Its multi billion investment in India was a dismal failure and was written off the balance sheet.

Despite the security and reputational risk, Vodafone continues to work closely with Huawei and uses this equipment across many countries. The company appointed a new CEO in early 2023. Strand Consult observed that Vodafone needs a “cleaner” like Harvey Keitel The Wolf in “Pulp Fiction.” Or they need Meryl Streep from the The Iron Lady, not the Meryl Streep in Mama Mia!  Margherita Della Valle’s performance at Vodafone is associated with a falling share price.

Strand Consult does not expect to see results for mobile telecom shareholders driven by GSMA or ENTO. However, these organizations will likely continue to pay their top management high salaries. GSMA CEO Mats Granryd gets $2.4 million in annual salary to hold trade shows featuring increasingly Huawei and Meta while serving on the board of Swedish National TV and chairing Vattenfall  AB and Coore AB.

Elections and security of national infrastructure will take center stage in 2024. China will wage a proxy war against those countries which don’t adopt its equipment and service platforms. With growing interest rates and inflation, there is little to make telecom shareholders happy in the coming year.

In 2023 Strand Consult published many research notes and reports and featured cool people on its guest blog. Strand Consult’s analysis was quoted in some 1000 news stories globally. Our work took us to all the continents except Antarctica. Our readership continues to grow.  For the last 23 years, Strand Consult has made predictions for the coming year. Our archive shows that we get it right.

Thank you for your support and readership.

Feel free to reach me at [email protected]

References:

StrandConsult Analysis: European Commission second 5G Cybersecurity Toolbox report

StrandConsult: 2022 Year in Review & 2023 Outlook for Telecom Industry

Strand Consult: Open RAN hype vs reality leaves many questions unanswered

O-RAN Alliance tries to allay concerns; Strand Consult disagrees!

Strand Consult: What NTIA won’t tell the FCC about Open RAN