New challenges for the telecommunications industry in 2017: Progress in 5G and fiber deployment

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Driven by the growth of the digital economy and changing consumer demands, the telecommunications industry is facing unprecedented demand for network services. The forecast growth in new markets, such as Internet of Things (IoT) applications, is exciting. In 2016, mobile data traffic in the UK alone increased by 64%, while residential and small business fixed broadband traffic increased by 40%.

Investment in technology is a key factor in the telecoms industry’s ability to keep pace with the growth of the digital economy and changes in consumer demand. As high-speed broadband is increasingly seen as a basic human right, there are calls for the telecoms industry to increase investment in networks to improve fiber connectivity and 4G coverage.

In addition, technology is also a key factor driving competition and innovation. Technological development has enabled new entrants to provide VoIP and cloud-based communication services.

But at the same time, the telecommunications industry still faces many challenges. The economics of running networks remains complex, and increasing traffic does not necessarily mean increased profits. The normal operation of the market still requires effective supervision to promote competition and protect consumer rights.

However, the market must be allowed to find a way to encourage commercial investment in new networks. A key challenge for the telecoms industry in the coming year will be the balanced intervention of regulators as the EU implements regulatory reforms.

Against this backdrop, we expect five key trends to emerge in 2017, including:

The Internet of Things is growing rapidly

The market for connected products is still in its early stages of development, but is expected to grow rapidly as applications become more prevalent, especially in the automotive, healthcare, energy and mining sectors. Research firm Gartner predicts that the total number of connected devices will reach 25 billion in 2020, twice the total number of mobile devices.

Regulatory reform

Europe's regulatory regime is based on a Common European Framework (last updated nine years ago). During this period, the telecommunications industry has undergone significant changes in terms of consumer demand, communication technology and the competitive landscape. The EU is reviewing the EU Telecommunications Directive as part of its Digital Single Market Review and recently submitted a summary of its reform proposals.

At the same time, Ofcom is also conducting a strategic review of communications. The goal of both reviews is to recalibrate the regulatory system to encourage investment in high-speed networks. Proposals include a new universal service system that provides guaranteed broadband network access at 400Mbps, and a softer approach to regulating providers that use networks that operate on a pure wholesale basis or are co-funded by other operator investors.

A focus for Ofcom is the thorny issue of how to ensure the proper functioning of BT’s wholesale arm, Openreach, which runs the networks that other providers rely on. Some operators have been calling for BT to be broken up, and while that has not been ruled out, Ofcom would prefer greater functional independence by creating a wholesale subsidiary with an independent board.

Since there is no chance that BT will agree to such a structure, Ofcom has referred the issue to the EU to force BT to implement it. It remains to be seen whether this will force BT back to the negotiating table or we will still have to fight a long battle on this issue.

5G and fiber deployments gain momentum

While the UK is unlikely to launch 5G services before 2020, some key steps in the development of 5G services will be initiated next year. The UK's spectrum auction in 2017 will include 3.4GHz radio waves that can be used for 5G services.

In the Chancellor’s Autumn Statement, the Government pledged to invest over £1 billion over the next four years in the deployment of new fibre networks and 5G. This will be achieved by:

A new Digital Infrastructure Investment Fund of £400m (to be matched by private investment) to invest in new fibre networks;

A 100% business rates reduction for new full-fibre infrastructure over five years;

Funding local areas to support investment in the national fibre network to meet the needs of businesses and the public sector. Consultation with industry on the delivery approach is expected shortly; and

Funding a coordinated programme of integrated fibre and 5G trials.

Cross-market mergers and acquisitions

The EU's decision to block the merger of O2 UK and 3 UK makes it clear that competition authorities want to maintain adequate domestic competition between mobile network operators. However, "cross-market" mergers (involving mergers between operators and businesses in different industries or countries) will be more popular, and the telecoms industry will no doubt be watching the outcome of the US regulatory review of the AT&T and Time Warner deal closely.

Diversification of products and services

Operators will continue to develop new service lines to improve their profitability. Many operators have already started to provide content services, and we expect them to further expand into areas such as cloud services, financial services and content provision.