Radar December 2018
Copyright © 2018 GSM Association About the GSMA The GSMA represents the interests of mobile operators worldwide, uniting more than 750 operators with over 350 companies in the broader mobile ecosystem, including handset and device makers, software companies, equipment providers and internet companies, as well as organisations in adjacent industry sectors. The GSMA also produces the industry-leading MWC events held annually in Barcelona, Los Angeles and Shanghai, as well as the Mobile 360 Series of regional conferences.
The Radar series focuses on potential drivers of innovation and disruption across the digital economy. These reports highlight potential scenarios and examine the implications of these disruptions for a range of industry players, including the mobile operators. The reports are intended to be the basis for discussion and do not represent official GSMA positions on these future developments. Contents
1 New disruptions on the Radar 2
2 Key takeaways 4
3 A telco without towers? 8 3.1 Executive summary 9 3.2 Tower offload is just the beginning 10 3.3 The future landscape: from one to many 12 3.4 Implications: potential changes to competitive environment 17
4 Grocery supply-chain disruption: upsetting the apple cart 20 4.1 Executive summary 21 4.2 The evolving grocery industry 22 4.3 Forces changing the structure of grocery 24 4.4 The role of technology and data 27 4.5 Future competitive landscape: what's in store? 30
5 Next-gen urban mobility: racing against time 32 5.1 Executive summary 33 5.2 Cities face a trio of challenges 34 5.3 Stage 1: micro-modal (immediate term) 35 5.4 Stage 2: AVs for business and logistics (3–5 years) 38 5.5 Stage 3: AVs for consumers (5–10+ years) 39
6 Are roboadvisors the future of investing? IN GRAPHICS 42 6.1 New players on the block 43 6.2 What are roboadvisors? 45 6.3 Roboadvisors will continue to evolve as AI gets smarter 47 6.4 Implications for traditional investment firms and consumers 49 Radar December 2018 1 New disruptions on the Radar
New disruptions on the Radar 2 Radar December 2018
This edition of the Radar comes at the end of 2018 – a year of significant advancement in AI and blockchain, rollercoaster activity in crypto, the first trillion dollar company (Apple), and broader network transformation towards the edge. For telcos, 5G is nearly a reality.
In this edition, we look at the following:
• The traditional network model for operators • Urban transport is in the early stages of a is shifting away from sole ownership structural change towards shared or rented (vertical integration) to shared and/or access models and autonomous vehicles. leased access. On the cusp of 5G, what The ride-sharing model pioneered by might a future, more diverse network Uber continues to spur further competing landscape look like? Full stack, hybrid platforms and greater consumer take-up. wholesale/retail, and the advent of private Low-speed EVs (LSEVs) are an emerging networks are all in play. We examine how category created from scratch by Bird and the prevailing ‘asset-heavy’ network model Lime in the form of scooters and bicycles. will be replaced by a more diverse range Autonomous vehicles (AVs) will reach of network options, with a host of new commercial deployments for logistics use competitors. cases in three to five years, potentially sooner. How does the next 10 years play out? • Changing consumer behaviour, the growth of online shopping and the entry of digital • In our final in-graphics chapter, we look at players into the market have altered the the nascent reshaping of the investment workings of the traditional grocery supply management sector. AI underpins a new chain. We analyse these key drivers for generation of more intelligent roboadvisors. change, the role of innovative start-ups at Tech-savvy investors have the prospect of both ends of the industry and the ways enjoying personalised customer relationships technology and data are being utilised to and will be able to create their own ensure food traceability, make distribution investment portfolio by articulating their life more efficient, optimise procurement plans through voice-enabled smart interfaces. decisions and transform the store I hope the topics featured in this edition of the experience. Radar help inspire fresh perspectives within your organisations and help you gain a view of the road ahead for our industry.
I wish you all a happy holiday and Iook forward to seeing many of you at Mobile World Congress in February.
Laxmi Akkaraju
Chief Strategy Officer GSMA
New disruptions on the Radar 3 Radar December 2018 2 Key takeaways
Key takeaways 4 Radar December 2018
A telco without towers?
• The network model for operators is shifting away • Increased network sharing reduces differentiation from one based on sole ownership to shared and/ and puts greater emphasis on spectrum. If spectrum or leased access. Persistent network investment is the cost of doing business, rates could be bid to demands against a low (or negative) revenue uneconomic levels. growth environment are the cause. • With remote SIM and the process of unbundling, • China Tower’s formation in 2014 has since operators could be crowded out of the bottom and precipitated a spate of infrastructure spin-offs in top of the value chain while continuing to hold the partnership with private equity groups or sale-and- weakened middle. leaseback deals with tower companies. • The positive may be that capital is freed for • On the cusp of 5G, what might a future, more more productive uses. Altice explicitly cited diverse network landscape look like? We examine the opportunity to wholesale capacity to other three models: full stack; hybrid wholesale and retail; operators in its rationale for spinning off towers and private networks and neutral host. into a joint venture with KKR in France (SFR) and Portugal (PT). In other countries, this may • While not mutually exclusive, the common involve investing in alternative priorities such as 5G denominator of these scenarios is that the prevailing enterprise services, an overhaul of customer service, ‘asset-heavy’ network model of the past will be or content offerings. replaced by a more diverse and changeable range of network options, with a host of new competitors on the block.
Grocery supply-chain disruption: upsetting the apple cart
• The global grocery sector is worth trillions of dollars • At the same time, technology is permeating the annually and is one of the top consumer spend supply chain as grocery firms attempt to cut costs, categories. However, it is undergoing a period of drive efficiencies and handle the emergence of new significant change caused by a number of factors. threats. Upstream, blockchain is being employed One is behavioural and has seen consumers show a to improve food tracking and safety, while artificial greater demand for convenience, as well as interest intelligence (AI) is coordinating the movements of in food origin and ethics. robots in supermarkets’ distribution centres. • A second has been the internet, which has kick- • The application of sensors throughout the chain started the online grocery delivery market and, in is creating connected systems that can monitor turn, caused the entry of incumbent supermarkets, transport conditions, while advanced data analysis independent retailers and new players into the is generating better demand forecasts and guiding direct to consumer (D2C) channel. A third cause own-label product development. At the retail of disruption is huge e-commerce firms, who are level, trials of smart stores without cashiers or aiming to merge their existing logistics networks check‑outs suggest a vision for the grocery stores with a physical store presence to make inroads into of the future. one of the only markets they have yet to penetrate.
Key takeaways 5 Radar December 2018
Next-gen urban mobility: racing against time
• Urban transport is in the early stages of a structural point at which transport modes used by logistics change towards shared or rented access models and and distribution businesses (AV drones and vehicles) autonomous vehicles. This structural change is set to are both complementary and substitutive to the occur in stages: status quo. The main challenge to this scenario is the cost to retrofit buildings, roads and street furniture • Stage 1: micro-modal (immediate term). This is an with supporting infrastructure such as sensors umbrella term for a new category of LSEVs coined in the wake of launches from Bird and Lime. Initial • Stage 3: AVs for consumers (5–10+ years). This is adoption rates have followed a steep S curve, the most disruptive phase as ride sharing becomes reaching a combined 10 million rides in eight months a legitimate complement or even substitute to car compared to the two to three years it took Uber ownership for significant sections of the population. and Lyft to accomplish the same figure. Commuter Partnerships between cities and the private sector traction has come from their ease and affordability, seem an inevitable requirement, particularly for open while city administrations are positive given the help data sharing. Financing is the other major issue. in achieving carbon emission targets Platforms such as Uber will have to take the long view: by investing in restructuring urban transport • Stage 2: AVs for business and logistics (3–5 years). infrastructure, consumer behavioural change This builds on the micro-modal stage and is the towards a shared access model will follow over time.
Are roboadvisors the future of investing?
• Investment management is undergoing fundamental • New investment management vendors which changes driven by technology developments and provide services over digital platforms – so called changing consumer behaviours. Increasing adoption roboadvisors – provide recommendations via of digital technologies and early applications of AI algorithms rather than people. As with traditional are leading to cost efficiencies in investment systems, portfolio management, robo services are tailored to greater use of structured and unstructured data and the client’s risk profile but attempt to lure customers unprecedented product innovation. with lower account minimums and reduced fees. • Demographics play a key role too – today’s millennials IN GRAPHICS are informed and tech savvy, and demand a wider
and more personalised range of wealth management Types of AI tools
services, accessible through digital platforms Data analytics and Feed and process data from disparate unsupervised learning sources (e.g. newsfeed, various legal Current roboadvisors and regulatory limitations that dier anytime and everywhere. As a result, the competitive across the globe) landscape is changing, with traditional investment Predictive modelling Facilitate access to investment, educate investors and simplify interaction with firms facing increasing competition from smaller Machine learning and professional investment services pattern recognition (e.g. dashboards, voice interfaces) and innovative fintech players, who are opening the Cognitive tools in Optimise investments across their financial applications lifecycle — creation, issuance, service to lower net worth clients by simplifying the marketing, execution, post-trade analytics investment process. Natural language processing and voice interfaces Develop deeper understanding of the end investor’s goals linked to their real life plans, personal interests and Context-aware systems life events (e.g. marriage, mortgage) Next-generation roboadvisors
Key takeaways 6 Radar December 2018
Key takeaways 7 Radar December 2018 3 A telco without towers?
A telco without towers? 8 Radar December 2018
3.1 Executive summary
The network model for operators is shifting away from one based on sole ownership to shared and/or leased access. The main driver is the continued burden of financing network investment in an environment of continued low or negative revenue growth. This is unsustainable in light of the impending demands of new investment for 5G, onerous coverage obligations attached to spectrum licences, and persistent debt loads.
Tower spin-offs and network sharing have been the main • Private networks are a relatively new concept methods of managing this problem. Bharti’s spin-off of and would involve a dedicated slice of spectrum its Indian towers into Infratel in 2007 was, at the time, and network capacity reserved for the use of one an isolated case but has since re-emerged with the client. The neutral host model comes into play creation of China Tower in 2014. In its wake has emerged for localised deployments requiring ultra-high a spate of infrastructure spin-offs in partnership with bandwidth in a compressed area with high footfall, private equity groups (e.g. Telefónica, Altice) or sale-and- or to absorb capacity at the edge. In either case, leaseback deals with tower companies (e.g. Verizon with the host becomes a new participant in the passive American Tower in 2016, Zain with IHS in 2017). level of the value chain, and potentially RAN if they can strike spectrum sharing agreements with The trend reflects hard-headed thinking from operators mobile operators. on how to manage an infrastructure business that The fact that any given operator could operate or balances scale with thrift. The ‘asset-heavy’ network participate in multiple network types implies a number model of the past will be replaced by a more diverse and of potential changes to the competition environment. changeable range of network options, with a host of new Increased network sharing reduces differentiation and competitors on the block. places a greater emphasis on spectrum. If spectrum is the cost of doing business, rates could be bid to On the cusp of 5G, what might this future diverse uneconomic levels. network landscape look like? We outline three models: With remote SIM and the process of unbundling, • While full stack has been the favoured model operators could be crowded out of the bottom and top during the 2G and 3G eras, few telcos have of the value chain while continuing to hold the weakened remained exclusively tied to it. This model will be middle. This has been termed the ‘smiling curve’ effect in difficult to operate in the 5G era because of the other industries. The unsung positive may be that capital cost of high-density, small-cell build-outs. is freed for more productive uses. Altice explicitly cited • The hybrid model involves devolving all or part of the opportunity to wholesale capacity to other operators the passive network to tower companies. Operators in its rationale for spinning off towers into a joint venture take on the dual role of selling retail services and with KKR in France (SFR) and Portugal (PT). In other wholesaling spare capacity to competitors. The countries, this may involve investing in alternative same third-party infrastructure ownership in the 5G priorities such as 5G enterprise services, overhauling world could manifest itself on macro cell and small customer service or content offerings. cell networks.
A telco without towers? 9 Radar December 2018
3.2 Tower offload is just the beginning
The main driver of the shift away from sole ownership is the continued burden of financing network investment in an environment of sustained low revenue growth. Capex intensity ratios (share of revenue) have remained stable at 15–20% over the past 10 years.
The problem is that this does not capture the amount the sole exceptions in the G7, the latter for the wrong of money left over for new investment (free cash reasons (see Figure 1). This is unsustainable in light of flow). The unfortunate reality is that in most advanced the impending demands of new investment for 5G and markets in the US, Europe and Asia, growth in capex persistent debt loads that need to be reduced. far outweighs growth in revenue. Canada and Italy are
Source: GSMA Intelligence 1 Mobile network investment in a low-growth environment (2017)
20%
15%
10%
5%
0%
-5%
-10%
-15% Canada US UK France Germany Italy China South Australia Japan Korea Revenue growth Capex growth
Note: growth rates are annual year-on-year
Tower spin-offs and network sharing have been the zero in 2014. Operators in other countries have entered main methods of managing this problem. Bharti’s into similar deals either through infrastructure spin- spin-off of its Indian towers into Infratel in 2007 was, offs in partnership with private equity groups that at the time, an isolated case but has since re-emerged remain consolidated into the group balance sheet (e.g. with the creation of China Tower in 2014. This is a joint Telefónica, Altice) or sale-and-leaseback deals with venture with a tripartite ownership structure involving tower companies (e.g. Verizon with American Tower all three Chinese operators. Third parties now control in 2016, Zain with IHS in 2017). A brief chronology of and operate 60% of mobile base stations in China, a selected deals is provided in Figure 2. striking figure considering their presence was essentially
A telco without towers? 10 Radar December 2018
Source: Company reports 2 “Going, going, gone”: are towers a thing of the past for operators?
2007 2010 2014
Bharti Infratel (India) China Tower (China) — Spin-o (Bharti sites) — Spin-o (tower assets of — 39,000 sites all three Chinese operators) — China Mobile (38%), China Unicom (28%), China Telecom (28%), China Reform (6%) — 1.9 million sites
2016 2016 2015
Telxius (Spain, Germany, Argentina, Brazil, Chile, Peru) Verizon (US) — Sale and leaseback with — Spin-off (Telefonica sites) American Tower — Joint ownership: Telefonica, KKR and — 11,400 sites, $5 billion Pontegadea — 16,500 sites, 87,000 km fibre
2018 2017 2020
Zain (Kuwait) —Sale and leaseback with IHS Altice (France, Portugal) — Spin-o (SFR and Portugal — 1,600 sites, $165 million Telecom sites) — France: joint ownership Altice and KKR. 10,200 sites — Portugal: joint ownership Altice, Morgan Stanley, Horizon Equity. 2,900 sites — €2.5 billion total
Operational efficiency in the passive level of the operators on how to manage an infrastructure network value chain is significantly higher when business that balances scale with thrift. It is tacit tower companies control it. The passive level includes confirmation of the law of comparative advantage by sites, towers (masts) and ancillary equipment such unbundling the network stack into its constituent parts as power and housing. The active level includes the to be managed by those with the specialisation and radio access network (RAN), backhaul links and capital to do so. core. Spectrum straddles the two. Tower companies operate multi-tenancy arrangements, with the major However, there is also a longer term structural firms running ratios of between 1.8 and 3.0. Because significance. The prevailing ‘asset-heavy’ network the infrastructure cost base is largely fixed after model of the past will be replaced by a more diverse initial investment to lay the towers, substantially and changeable range of network options, with a host all incremental revenue derived from an additional of new competitors on the block. operator siting their equipment on a given mast flows through to profit. This is buttressed by rent escalators of 2–3% built into the annual leasing contracts. The The prevailing ‘asset-heavy’ network net effect is a near-bulletproof business model with EBTIDA margins at 30–60%. model of the past will be replaced by a more diverse and changeable range The shift of tower assets into the control of tower of network options, with a host of new companies reflects hard-headed thinking from competitors on the block
A telco without towers? 11 Radar December 2018
3.3 The future landscape: from one to many
On the cusp of 5G, what might this future diverse network landscape look like? We outline three models:
Full stack (vertically integrated) Private networks and neutral host (particularly for small cells).
Hybrid retail and wholesale
The mobile industry has evolved over 30 years network sharing in the LTE era. Over the next 5–10 through four generations of cellular protocols, with years, our expectation is that the hybrid model will 5G now on the near horizon. However, the network predominate for macro networks but will be joined paradigm has remain rooted in a vertically integrated by a range of new private and neutral host models to model through most of that period. Only recently has cater for the range of business models that become this started to change with the hybrid model through possible with 5G.
Source: GSMA Intelligence 3 Transitioning to an era of network diversity
10,000
8,000
6,000 Mobile connections (cumulative, million) (cumulative, Mobile connections
4000
2,000
0 2011 2021 2017 2012 2013 2015 2018 2016 2014 2010 2001 2022 2023 2025 2024 2007 2020 2002 2003 2005 2019 2008 2006 2009 2004 2000 2G 3G 4G 5G
A telco without towers? 12 Radar December 2018
Full stack
‘Full stack’ describes the traditional vertically The disadvantage is that the same operating leverage integrated model of network ownership. Operators can turn negative when revenue growth stops or control all levels of the passive and active if an operator has a poor spectrum position. In this infrastructure layers. Site portfolios have been steadily case, operators have to fund the entire network built up over decades, starting with 2G in the early cost structure, with little opportunity to scale down 1990s, and expanding to increase 3G and 4G coverage because the sites are already laid. through new locations or equipment swap-outs on existing towers. While this has been the favoured model during the 2G and 3G eras, few telcos have remained full-stack The principal advantage of this model is that players and those that have are typically former state operational control is retained under one roof, in monopolies with integrated fixed-mobile infrastructure theory increasing quality of service and the flexibility (Telecom Italia, for example). of deployment, though site availability and planning permission continue to be nagging issues in many This model will be difficult to operate in the 5G era. countries. Scale has historically translated into positive Aside from the imbalance in investment versus growth, operating leverage – an environment of increasing it does not carry favourable economics for high- revenues against a fixed cost base. density small cells.
Source: GSMA Intelligence 4 Operators are vertically integrated in the traditional model of network ownership
Stack Ownership Value chain
VAS
Billing Equipment vendor Core MNO (Ericsson, Nokia Huawei) Backhaul
RAN
Ancillary equipment Towerco
Towers MNO Towerco
Sites Land owners (cities, farmers, REITs)
Active Passive
Note: spectrum not shown as could be classified in passive or active layers
A telco without towers? 13 Radar December 2018
Hybrid retail and wholesale
The hybrid model involves operators taking on a dual The same third-party infrastructure ownership in the role: devolving a portion of their site portfolio to tower 5G world could manifest itself on macro cell and small companies and having the option to sell wholesale cell networks. The macro cell network is likely to follow access to competitors, while also continuing to a non-standalone configuration in most countries, manage the remaining capacity and selling directly to meaning existing LTE sites are used for 5G NR. retail customers. Operators would continue leasing space from tower companies and purchasing equipment from vendors. In the hybrid model tower companies are inserted into The interesting potential change involves small cells. the passive layer. The tower company relationship is Operators could lay their own small cell networks symbiotic because of the parties’ shared interest in but there would be significant overlap in city centres expanding mobile coverage at reduced cost compared because of the cramped cell sizes. A third party may to traditional full-stack rollouts. Tower companies choose to lay its own small cell network and sell are able to do this because of multi-tenancy, with capacity to one or multiple operators on a wholesale substantially all marginal revenue from each additional basis. Such a third party could be a traditional tower operator customer flowing through to profit. Operator company or so-called neutral host provider. The leasing, as opposed to direct ownership, shifts costs advantage of this approach is faster time to market from capex to opex. Estimates from the field suggest by pooling costs. Recent modelling in the UK, for cost savings for an operator of 70% over a five-year example, suggests that under a shared small cell term and 50% over 10 years (price premiums are approach, 5G population coverage would reach 67% applied for long-term security). 18 months sooner than by continuing the existing 2×2 national network approach.1
Source: GSMA Intelligence 5 Hybrid model introduces tower companies into the passive layer
Stack Ownership Value chain
VAS
Billing Equipment vendor Core MNO (Ericsson, Nokia Huawei) Backhaul
RAN
Ancillary equipment Towerco
Towers MNO/Towerco Towerco
Sites Land owners (cities, farmers, REITs)
Active Passive
1 The cost, coverage and rollout implications of 5G infrastructure in Britain, Edward J. Oughton, Science Direct, September 2018
A telco without towers? 14 Radar December 2018
Source: American Tower, GSMA Intelligence 1 Tower company economics driven by multi-tenancy (sample deployment scenario)
Year Revenue ($) 1 2 3 4 5 Tenant 1 22,800 23,256 23,721 24,196 24,679 Tenant 2 22,800 23,256 23,721 24,196 Tenant 3 22,800 23,256 23,721 Escalator 2.0% 2.0% 2.0% 2.0% Total 22,800 46,056 69,777 71,173 72,596
Costs ($) Construction 225,000 Operating expenses 12,000 13,000 14,000 14,000 14,000 (maintenance, repairs) Total 237,000 13,000 14,000 14,000 14,000
Operating income ($) (214,200) 33,056 55,777 57,173 58,596 % 72% 80% 80% 81%
Note: Assumes monthly tenant fee of $1,900 and fixed rent escalators of 2.0%
Private networks and neutral host
This is a relatively new concept. Private networks would regulator is considering releasing 100 MHz of spectrum involve a dedicated slice of spectrum and network directly to enterprises. capacity reserved for the use of one client. Operators could accomplish this using their existing spectrum The neutral host model comes into play for localised holdings, selling capacity to enterprise clients such as deployments requiring ultra-high bandwidth in a automotive manufacturers or national grid operators. compressed area with high footfall, or to absorb Alternatively, enterprises could go it alone. capacity at the edge. In either case, the host becomes a new participant in the passive level of the value CBRS licensed spectrum in the US has been liberalised chain, and potentially RAN if they can strike a by the FCC for grassroots use, with a sizeable wave spectrum-sharing agreement with mobile operators. of applications received after consultation. In this The rationale for a neutral host provider rests on being case, the same car manufacturer could conceivably able to sell access to multiple operators. Candidates deploy a network on 3.5 GHz spectrum with a highly could include Wi-Fi hotspot operators (e.g. Boingo), localised coverage radius. The solution has drawbacks equipment vendors or other localised network in that CBRS spectrum works on a priority basis. providers (e.g. Dense Air). Consider a sporting venue Military and satellite users are ahead of anyone else, that wants to provide an augmented fan experience meaning the network could be subject to non-use or through VR content. Infrastructure could conceivably underperformance at any given time. Similar spectrum be deployed by the venue owner, TV broadcasters or options are being considered in Germany and Sweden mobile operators. The venue owner and broadcasters with the same enterprise focus. In Germany, the could hire a vendor to deploy the solution but have
A telco without towers? 15 Radar December 2018
no clear business model on how to monetise it for it faces unfavourable economics as only a portion of fans. Operators could sell it as an enhancement the audience will be its own customers. A neutral host for customers in a given country (in the same way could deploy a gateway to customers of all operators, Vodafone has done with its Live series in the UK) but potentially taking a revenue share with the stadium.
Source: GSMA Intelligence 6 Neutral hosts provide wholesale capacity to multiple operators
Stack Ownership Value chain
VAS
Billing MNO Core Equipment vendor (Ericsson, Nokia Backhaul Huawei)
RAN MNO/neutral host
Ancillary equipment
Neutral host Equipment vendor / towerco Small cells
Sites Venue or land owner Land owners (cities, farmers, REITs)
Active Passive
A telco without towers? 16 Radar December 2018
3.4 Implications: potential changes to competitive environment
The fact that any given operator could operate or participate in multiple network types implies a number of potential changes to the competitive environment.
Spectrum goes (even more) premium
Voluntary network sharing agreements between • converged media/telco businesses with existing operators will continue to proliferate. As operators network asset base continue to increase the portion of sites shared –– Sky/Comcast with competitors or leased from tower companies, –– Vivendi (shareholder in Telecom Italia) differentiation in geographic coverage footprints will –– Disney be reduced. Spectrum prices could be bid up even • cloud and software as a service (SaaS) providers further on current levels (as will fibre), and exacerbated –– Amazon by a number of variables – one being poorly designed –– Microsoft auction structures. The recent 5G auction in Italy is –– Alibaba a case in point; despite auctioning less than half the frequency allocation compared to Finland, yields were • vertical sector players. higher. Another is the presence of new companies The risk is that if spectrum is the cost of doing bidding for licensed spectrum, particularly mmWave business, rates could be bid to uneconomic levels for spectrum in the 28/29/38 GHz bands. Potential operators with marginal positions (number 3 or 4). This bidders for 5G frequencies could include the following: could precipitate further consolidation, or at least an acceleration of the network sharing and tower offload already in train.
Network becomes unbundled, leaving operators in the ‘smiling curve’
The tower company rise underlines network technology into the Apple Watch in May. The current unbundling at the passive level. This will continue version of the phone will also have a slot for a traditional through the 5G era and it is hard to see it being physical SIM, enabling customers to have two mobile reversed considering the structural change in growth numbers on one device. However, if Apple’s history expectations for the telecoms industry. is anything to go by, it will leverage Moore’s Law and downsize the space on the circuit board needed for The active level will remain primarily operator controlled processing capabilities, making it only a matter of time because spectrum and radio equipment represent the before the physical slot is abandoned. highest barriers to entry to being a communications provider. Above this lies a new tier, SIM provisioning, which has become relevant because of the onset of Those on either extreme of the value eSIM. Four years on from incorporating a virtual SIM in the iPad, Apple has integrated the technology into chain (tower companies and OEMs) the latest iPhone. It has signed deals with Etisalat and could do very well, with operators in Du in the UAE, the latter having also incorporated the the middle suffering commodification
A telco without towers? 17 Radar December 2018
The risk for operators is that they are crowded out of negative operating leverage. In short, those on either the bottom and top of the value chain while continuing extreme of the value chain (tower companies and to hold the middle. If services are not established OEMs) could do very well, with operators in the middle in new, higher value areas compared to traditional suffering commodification. This has been termed the connectivity, operators would feel the squeeze of ‘smiling curve’ effect in other industries.
Capital redistribution
There are, of course, potential benefits for operators A more fundamental benefit is that capital is freed from a more asset-light infrastructure position. One for other uses, either financial (mostly paying is being able to operate infrastructure as a service. down debt) or strategic, in either case in pursuit of Altice explicitly cited the opportunity to wholesale improved returns on capital. Taking Europe as an capacity to other operators in its rationale for spinning example, if 10% of the projected €70 billion mobile off towers into a joint venture with KKR in France and fixed line capex from 2018 to 2020 was saved, (SFR) and Portugal (PT). In the Portugal case, the that would mean roughly €2.5 billion per year that company claims “It will be the first independent tower could be spent on other strategic priorities such as 5G company… allowing other operators to access towers enterprise services, overhauling customer service, or and expand their 4G/5G networks, in line with the content offerings. In the Middle East, Zain reiterated Portuguese regulator’s latest recommendations and its “transformational strategy in becoming a digital best market practices about sharing of infrastructure." lifestyle provider…” in its rationale for tower divestment While these are at the vanguard, our expectation is to IHS. This echoes the Turkcell approach. that such co-opetition will grow in popularity if for no other reason than the tower assets would otherwise be underutilised.
A telco without towers? 18 Radar December 2018
A telco without towers? 19 Radar December 2018 4 Grocery supply-chain disruption: upsetting the apple cart
Grocery supply-chain disruption: upsetting the apple cart 20 Radar December 2018
4.1 Executive summary
The traditional grocery supply chain has long been linear, with food produce handled by a number of intermediaries before reaching consumers. However, the sector has evolved in response to several factors and will continue to transform over the next decade and beyond.
A key driver of change is the shift in shopping habits. provenance has led to the use of technologies such Consumers are conducting more frequent, lower as blockchain to ensure security and traceability for spend grocery shopping and are demanding greater food in transit. Warehouse management is becoming visibility of their food’s origin. Further, the spread smarter as companies such as Ocado use robots of the internet, urbanisation and higher disposable to pick customer orders, and sell their technology incomes have supported the expansion of the solutions to clients in other countries. online grocery market. This has had implications for retailers’ management of their upstream supply With the ongoing expansion of online grocery networks and precipitated the entry of new direct-to- shopping, supermarkets are turning to algorithm- consumer (D2C) food delivery firms. Meanwhile, fierce based routing software to optimise job allocations competition has emerged from digital players such for their fleets of delivery drivers. Meanwhile, data as Amazon and Alibaba, who are looking to establish provided by this channel and loyalty programmes genuine ‘clicks-and-mortar’ grocery businesses by is allowing supermarkets to create more accurate combining extensive delivery networks, premium own- demand forecasts and improve procurement decisions. brand products and prime real estate. Recent launches of technology-heavy grocery stores The role of technology is becoming more prevalent could have consequences for staff numbers as retailers in the grocery market and will continue to do so as overhaul the current model, replacing cashiers and businesses look to better manage their operations, checkouts with sensors and apps to automate much of realise productivity gains and compete with new rivals. the shopping process. Increasing demand for quality and knowledge of food
Grocery supply-chain disruption: upsetting the apple cart 21 Radar December 2018
4.2 The evolving grocery industry
The global food and grocery retail market was estimated to be worth $8.8 trillion in 2015 and is forecast to expand to $12.2 trillion by 2020 – a compound annual growth rate (CAGR) of 6.9%.1 Groceries are one of the top consumer spend categories; in 2016, food and non‑alcoholic beverages accounted for a 12.2% share of EU household expenditure.2
The traditional grocery supply chain in many markets been affected, broadened or can now be bypassed has for some time been broadly linear. However, altogether, leaving the structure visibly different to the the industry is undergoing a significant period of model of a decade or so ago. change: various links in the distribution chain have
Source: GSMA Intelligence 1 Simplified traditional versus modern grocery distribution chains
Traditional Modern
Farmer/producer Farmer/producer
Agent/broker Agent/broker
Manufacturer/processor Manufacturer/processor
Wholesaler/distributor Wholesaler/distributor
Independent retailer Supermarket Independent retailer Supermarket
Consumer Delivery agent B2B partner
D2C Layer
Consumer
1 “The global food and grocery retail market size is expected to reach USD 12.24 trillion by 2020”, MarketWatch, August 2018 2 See https://ec.europa.eu/eurostat/statistics-explained/index.php/Household_consumption_by_purpose
Grocery supply-chain disruption: upsetting the apple cart 22 Radar December 2018
Historically, farmers would generally sell their produce Much of the disruption to the original model is taking to agents or processors before it was supplied to place in the consumer-oriented half of the supply chain supermarket chains or grocery wholesalers. However, (see Figure 2), which has seen the entry of new players the practice of primary producers selling directly to and some bifurcation in the means of distribution retailers and consumers has become more common, employed by large supermarkets and their smaller allowing them to circumvent certain ‘middlemen’ and rivals. At this level, partnership models are growing representing a valuable new route to market. in popularity, with third parties now handling the technology and delivery network for supermarkets in a number of countries across Europe and the US – often in return for a stake in their business.
Source: GSMA Intelligence 2 Focus of grocery supply-chain disruption
Farmer/producer
Agent/broker
Manufacturer/processor
Wholesaler/distributor
Independent retailer Supermarket
Delivery agent B2B partner
D2C Layer
Consumer
Meanwhile, there are a growing number of In contrast, small independent players typically lack international agreements between multiples,3 enabling the financial muscle for takeovers of – or investments them to leverage scale to increase volumes in return in – logistics firms. Such retailers are considering for lower unit prices from suppliers. In response alternative opportunities and exploring how delivery to new threats, supermarket chains are looking to agents in the start-up space, including the likes vertically integrate by buying wholesalers, and to of Instacart and HappyFresh, could support their diversify by acquiring non-food firms that bolster their operations in the D2C channel. e-commerce arms and profit margins.
3 I.e. larger grocery retailers with branches in many locations.
Grocery supply-chain disruption: upsetting the apple cart 23 Radar December 2018
4.3 Forces changing the structure of grocery
Consumer behaviour
The evolving market model reflects consumers’ There is, though, growing demand for quality and changing wants and needs, which are transforming the provenance over cheaper, mass-market products. landscape and giving rise to myriad opportunities and According to the European Consumer Organisation, challenges. Consumers today are demanding greater close to 70% of consumers on average in Austria, convenience and conducting more frequent, lower- France, Poland and Sweden consider origin as an spend grocery shopping. Some 65% of UK consumers important factor when buying food.5 Meanwhile, regularly visit supermarkets more than once per day, in Shanghai, Alibaba’s Hema stores are allowing according to supermarket Waitrose.4 Many consumers customers to scan a QR code to learn details of a are also more price conscious than before, which has product’s provenance. Consumers are also increasingly supported the proliferation of low-cost supermarkets concerned with ethical issues related to food (e.g. Aldi and Lidl in the US, Australia and Europe) and production and processing, reflected in growing sales discounters such as Daiso and Don Quijote in Japan. of Fairtrade and Rainbow Alliance Certified products.
Online shopping
A second driver of change has been the rise of online internet availability and penetration of smart devices. grocery shopping. Growth has been driven by the As Figure 3 shows, online is the fastest growing desire for convenience, urbanisation rates and higher grocery channel in terms of value and is one of three levels of disposable income, underpinned by rising gaining market share in the UK.
Source: Institute of Grocery Distribution6 3 UK grocery market, 2018–23
50%
40% Market share Market
30%
20%
10%
0% Hypermarkets Supermarkets Convenience Discounters Online Other retailers 1.4% 7.7% 17.6% 36.7% 52.4% -3.5% (%) Value change 2018 2023
4 The Waitrose Food and Drink Report 2017–18 5 Where does my food come from?, BEUC consumer survey on origin labelling on food, 2013 6 "UK food and grocery market to grow , Institute14.8% of Groceryby Distribution,£28.2bn Juneby 20182023"
Grocery supply-chain disruption: upsetting the apple cart 24 Radar December 2018
Retailers are no longer competing with just each other model so that online orders could be serviced through a for in-store shopping but also with firms in the online mix of picking in-store and dedicated fulfilment centres. space. In the UK, Ocado kick-started the development of the country's online grocery market when it began Other beneficiaries of the D2C trend include meal-kit trading commercially in 2002. It is an online-only firms, such as HelloFresh, which are experiencing growth supermarket with no store footprint and completes – albeit alongside high marketing costs and retention deliveries on a D2C basis. Ocado’s entry resulted in a challenges. Sales between producers and consumers swift move by incumbent supermarkets into the online (via the likes of Riverford and Farmdrop) have also channel, which necessitated a shift in their business grown, but still represent a fraction of the total market.
Digital players
A further source of disruption has come from the unavailable online. This backwards integration could arrival of the digital players into the grocery market. mean that the 365 brand becomes a signature hook of Despite rolling back its grocery delivery service Amazon’s online grocery offering, putting pressure on (AmazonFresh) from a number of US states, Amazon branded food sales. announced the $13.7 billion acquisition of Whole Foods in June 2017. Acquiring Whole Foods’ 450+ stores in Meanwhile, Alibaba has been rapidly rolling out its the US, Canada and the UK yields a network of mini own bricks-and-mortar supermarket, Hema, across distribution centres for fresh produce, establishing Chinese cities such as Beijing and Shenzhen. There are Amazon’s presence in last-mile delivery. This real expected to be 100 Hema stores by the end of 2018, estate could also be useful in shortening shipping supporting the firm’s omnichannel strategy. In January times, with the stores – clustered around urban areas 2018, domestic rival JD.com also opened its first – becoming distribution or collection hubs for Amazon offline supermarket 7Fresh, while Tencent has bought products. A further benefit is Amazon’s access to a 5% stake in the Yonghui chain to expand its physical Whole Foods’ 365 house brand, which was virtually presence.
Start-ups enabling disruption
Methods of food production
Start-ups are changing the way certain types of More than $700 million was invested in agricultural food are produced and how they reach consumers. and food technology companies in 2017,7 mainly For example, Soylent is a lab-produced meal around biotechnology, software and IoT, as well as replacement product that launched in the US in robotics, which could help address issues related 2013 following a successful crowdfunding campaign to labour shortages. Infarm is currently focussing and subsequent venture capital financing. Soylent its rollout on German and French grocery stores, drinks, whose main ingredient (aside from water) is having raised $25 million in Series A funding at the genetically modified soya protein, became available beginning of 2018. The company has developed an to UK consumers via Amazon in September 2018. “indoor vertical farming” system for grocery stores, restaurants and local distribution centres that is capable of growing herbs, fruit and vegetables. The platform is cloud-based, and monitored and controlled centrally.
7 Data from CB Insights. Investments in 2016 and 2015 were $332 million and $233 million, respectively.
Grocery supply-chain disruption: upsetting the apple cart 25 Radar December 2018
Alternative home delivery services
As online shopping becomes more popular and Postmates operates similar services across 550 consumer demand for convenience increases, US locations and in Mexico City. It offers grocery start‑ups are supporting smaller grocery retailers delivery in under an hour as well as free delivery and helping them to compete with multiples’ on orders over $15 with an Unlimited subscription. extensive logistics networks. Instacart is Postmates was recently valued at $1.2 billion after a pre‑eminent in this space, with more than 300 $300 million injection of funding in September 2018. partnerships around the US, serving 15,000 grocery stores. App-based Instacart offers same-day This model is also present in Asia, where HappyFresh delivery, free with an annual Express membership. undertakes deliveries for more than 30 supermarkets In November 2018 it announced the nationwide in Indonesia, Malaysia and Thailand. Meanwhile, the launch of its click and collect service, Pickup, after emergence of on-demand transport companies such a pilot in 25 markets. Following a third round of as Uber and Grab, and restaurant delivery providers funding in 2018, Instacart is now valued at $7.6 such as Deliveroo and Jumia Food, is presenting billion and has an IPO “on the horizon”. further opportunities in D2C grocery.
Grocery supply-chain disruption: upsetting the apple cart 26 Radar December 2018
4.4 The role of technology and data
Blockchain for traceability
In light of recent meat-produce scandals and a greater partnered with IBM, Walmart and Tsinghua University desire among customers for knowledge of food to launch the Blockchain Food Safety Alliance in a bid to provenance, blockchain advocates have proposed the improve food tracking and safety in China. technology as a means of improving traceability and security throughout the grocery industry. The supply In turn, IBM has teamed up with 10 firms, including chain can be complex and absent accountability, and Tyson, Kroger and McLane, to test the application can lack the ability to monitor in real time. Blockchain of blockchain to improve safety and ingredient has the potential to improve the process by creating transparency in the US. a permanent and shared record of every transaction associated with a food asset. This allows for multi- Smaller companies are also involved in this space; party visibility of ownership and movement through the goal of UK-based Provenance is to empower the supply chain, while the blockchain database cannot players across the whole grocery supply chain, doing be amended unilaterally. so through transparency, information and data. Over 200 firms use Provenance’s software to help prove the Alibaba has been a pioneering employer of this origin of their products, including over 12 Pole and Line technology, and in April 2018 launched the Food Trust certified producers in South-east Asia who track fish Framework to track food products from producer to bound for UK, Japanese and US markets. consumer. The initiative aims to enhance consumer confidence and create trust and transparency for cross- border trade across Alibaba’s Tmall Global platform. It Blockchain advocates have proposed uses unique QR codes and blockchain to authenticate and provide ongoing reporting of products throughout the technology as a means of the shipping process. Alibaba’s programme mirrors a improving traceability and security project launched by competitor JD.com in 2017, when it throughout the grocery industry.
Warehouse robotics
At the wholesale and distribution levels, players often To that end, major supermarket distribution centres face a range of challenges, including high inventory are making greater use of technology as they seek levels in conjunction with many goods out of stock, to replenish on-shelf availability more efficiently and a large volume of returned orders and long lead better serve the growing volume of online orders, which times for certain products. Here, firms are employing could help them provide delivery times comparable inventory tracking, monitoring and diagnostics, and to digital rivals. In one of its UK warehouses, Ocado is warehouse management solutions, connected by using air-traffic control systems and AI technology to IoT, to establish new business processes, increase co-ordinate 700 factory robots, making the customer efficiency and improve cross-organisation visibility. fulfilment centre one of the most advanced globally. GSMA Intelligence forecasts that by 2025 there will be This system, called “the hive”, uses robots to pick goods 996 million smart manufacturing IoT connections, up according to customer orders before delivering them from 112 million in 2017.8 to staff who pack them ready for onward distribution. The company is also working on robots that are able to treat fresh products with care, eliminating the need for manual picking and handling of delicate items.
8 IoT: the next wave of connectivity and services, GSMA Intelligence, 2018
Grocery supply-chain disruption: upsetting the apple cart 27 Radar December 2018
Similarly, but on a smaller scale, Tel Aviv-based them to a staff member for packing. In the US, Takeoff CommonSense Robotics is aiming to establish a Technologies is supplying US supermarkets, including network of automated micro-fulfilment centres (MFCs), Albertsons, with robot-based MFC solutions, often in suited to dense urban environments. These centres will existing retail premises, enabling them to pick and pack use robots to collect items ordered online and bring online orders more efficiently.
Retail store transformation
For many consumers, the most tangible dimension of stores, customers can pay by facial recognition – an the grocery market’s employment of technology will area into which Alibaba has been expanding. Further, be felt in-store. In January 2018, Amazon opened a JD.com’s 7Fresh supermarkets are equipped with prototype store in Seattle, which is cashier-less and smart carts that can help guide shoppers to their utilises technologies such as computer vision, deep desired aisles. Meanwhile, Tencent and Carrefour have learning and sensor fusion to automate much of the jointly opened a smart supermarket having agreed to shopping process. Customers need to download the cooperate on smart retail, mobile payments, in-store Amazon Go app to their smartphone before shopping; experience and data analytics. this is linked to their Amazon account. Amazon could set about employing the check-out free nature of In the UK, Marks & Spencer is testing an app that allows Amazon Go in the larger Whole Foods outposts, with people to scan barcodes and pay digitally without a reduction in headcount an inevitability. Amazon Go heading to a till, while Waitrose’s Quick Check service is also likely to expand to a number of other markets is now app-based, offering an alternative to scanner where Amazon has a strong presence, such as Europe. guns. While issues around data security must be fully addressed to secure consumer trust and spur adoption, In China, Alibaba’s Hema signals the group’s vision retailers will rely more on technology to improve for supermarkets of the future. Each new Hema store efficiency and convenience. Consequently, unstaffed allows customers to scan barcodes through an app stores combined with shopping apps appear a sign to discover product information and recipe ideas, and of things to come and could support a levelling of the checkout via their Taobao or Alipay accounts. At some playing field between grocery and e-commerce firms.
Developing the smart home channel
A further sales channel for grocery retailers is in the The app allows users to add products to an existing smart home – specifically digital assistants, which Ocado order or basket via voice command. Around will be the central control hub for the smart home the same time, Google announced a partnership over the coming years.9 In August 2017, Ocado with Walmart to make many of the supermarket’s launched an app for Amazon’s Alexa voice assistant, products available for order through the Google becoming the first UK supermarket to do so. Home smart speaker.
9 For more detail, see Smart home: from niche to mainstream by 2025, GSMA Intelligence, 2018
Grocery supply-chain disruption: upsetting the apple cart 28 Radar December 2018
Data for procurement and private labels
Data is also proving a key reason for digital players’ Data-driven procurement could ventures into bricks-and-mortar grocery retailing. An e-commerce platform combined with physical stores become vital to long-term cost provides data on how someone shops online and offline. reductions and efficiency gains, and Insight gathered from this data means a better ability to represents a competitive advantage target advertisements and customer recommendations than an offline-only grocer. Because many shoppers for early adopters. order some groceries online but also shop in person, this combination could be particularly useful. In addition to the use of technologies such as blockchain and robotics, data is forming a crucial Moreover, data is beneficial to grocery retailers looking element of grocery firms’ operations and commercial to expand their own-label (also known as private- strategies. Access to transformative, actionable label) offerings, which can target specific budgets information can lead to grocery retailers making and market segments, and allow for greater control optimised procurement decisions. For example, through the supply chain. As in-house products analysis of historical data can be used to create better generally carry more favourable margins, they can be demand forecasts, which more closely predict sales central to building profitability in a highly competitive in certain areas. These can then be used to improve sector. Knowing what consumers often buy can guide on-shelf availability; reduce the volume of quickly supermarkets’ development of private-label products, perishable products going unsold; or shorten lead which can be positioned to compete head on with times or decrease substitutions for D2C orders. As branded goods. such, data-driven procurement could become vital to long-term cost reductions and efficiency gains, and represents a competitive advantage for early adopters.
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4.5 Future competitive landscape: what’s in store?
Three major factors have driven change and will continue to shape the development of the grocery sector moving forward: shifting consumer behaviour, which has seen demand for convenience, discounters and provenance grow simultaneously; the burgeoning online grocery market, which has established a new battleground for traditional supermarkets; and the entry of digital players into grocery, with potential to cause further disruption.
However, these agents of change are not mutually What is clear, however, is the role technology and data exclusive and there is uncertainty as to how they can and will play going forward in reducing costs, will interact to form the competitive landscape of cutting delivery lead times and realising efficiencies tomorrow. While traditional supermarkets currently from the top to the bottom of the grocery value chain. account for the majority of grocery sales, digital This will result in greater utilisation of blockchain players are enjoying strong growth in the expanding for security of food in transit, software to optimise online channel. These firms have been establishing a delivery routes, and data in the development of own- network of bricks-and-mortar grocery stores, while label products. The retailers that win will be those that the incumbents have focussed on acquisitions to use such technological innovations to drive loyalty, bolster their e-commerce arms, vertically integrate deliver a good customer experience and keep pace or help them compete on speed of delivery. While with consumers’ evolving demands. grocery is a huge industry globally, local conditions will continue to heavily influence how the story plays out on a country-by-country basis.
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Grocery supply-chain disruption: upsetting the apple cart 31 Radar December 2018 5 Next-gen urban mobility: racing against time
Next-gen urban mobility: racing against time 32 Radar December 2018
5.1 Executive summary
With cities home to a growing concentration of economic activity and labour, municipal governments face a trio of challenges: rising populations, pollution levels above safety thresholds, and the knock- on effect for public health and lost productivity in the labour market.
Transport touches each of these. Across cities, point at which transport modes used by logistics and technology and digital transformation are changing distribution businesses (AV drones and vehicles) are urban mobility. Urban transport is in the early stages both complementary and substitutive to the status of a structural change towards shared or rented quo. In grocery, Amazon and Walmart are testing access models and autonomous vehicles. The ride- AV technology for last-mile distribution. The same is sharing model pioneered by Uber continues to spur true for logistics and postal services using mid-size further competing platforms and greater consumer vehicles and trucks. Uber’s acquisition of Otto is, by take-up. Electric vehicles (EVs) represent a minority the company’s own admission, a longer term bet but it on the road but this is more the result of limitations could potentially use it as a laboratory to extract more around battery life and charging station availability near-term innovations that could be deployed into, for that will be overcome. Low-speed EVs (LSEVs) example, Uber Eats. The main challenge to this scenario are an emerging category created from scratch by is the cost to retrofit buildings, roads and street Bird and Lime in the form of scooters and bicycles. furniture with supporting infrastructure (e.g. sensors). Autonomous vehicles (AVs) will reach commercial deployments for logistics use cases in three to five years, potentially sooner. Stage 3 AVs for consumers (5–10+ years) This structural change is set to occur in stages: This represents the most disruptive phase as ride sharing becomes a legitimate complement or even Stage 1 substitute to car ownership for significant sections Micro-modal (immediate term) of the population, coupled with the micro-modal transport already established. Partnerships between This is an umbrella term for a new category of LSEVs cities and the private sector are a challenge: the vast coined in the wake of launches from Bird and Lime. majority of miles travelled by people living in cities are Initial adoption rates have followed a steep S curve, on road and rail infrastructure under public ownership, reaching a combined 10 million rides in eight months and incentivising multi-passenger ride-shares in compared to the two to three years it took Uber and autonomous EVs in reserved lanes, for example, Lyft to accomplish the same figure. Commuter traction requires city permission. Integrated payment platforms has come from their ease and affordability, with per- that allow people to pay for public transport and mile economics better than cars and public transport, ride-sharing through a common interface would be a and the pay-as-you-go model suitable for a range of major step forward. A further challenge is open data income groups. City administrations are positive given sharing. Uber, Lyft, Didi and their brethren hold reams the help in achieving carbon emission targets. of passenger metadata but little is shared with local transport authorities (and vice versa). Finally, there is cost. City budget cycles are fixed and under pressure. Stage 2 Platforms such as Uber will have to take the long AVs for business and logistics (3–5 years) view: by investing in restructuring urban transport infrastructure, consumer behavioural change towards This builds on the micro-modal stage and is the a shared access model will follow over time.
Next-gen urban mobility: racing against time 33 Radar December 2018
5.2 Cities face a trio of challenges
Municipal governments face three major challenges that have a bearing on urban transport:
• Rising populations. In the US, the World Bank transformations in the 1980s and 1990s to become estimates 82% of the population now live in industrial economies. The recent change is that cities, compared to 60% in 1960. In China, the the problem has spread to advanced countries. effect is more pronounced given the wholescale In Europe, 150 cities have a population density transformation to an industrial economy, with above 1,500 per sq km and total populations above 58% now in cities compared to 16% over the 50,000, “nearly all” of which had particulate matter same period. Globally, the UN estimates 60% of levels above WHO guidelines as of November 2017. the world’s population will be living in cities with • The knock-on effects forpublic health and lost minimum populations of 1 million by 2030. productivity in labour markets. This is the most • Increasing pollution levels, driven by the growth significant: indeed, transport has re-emerged in the number of intra- and intercity journeys on the political and business agenda at priority (air, road and rail). This has long been the case in levels not seen since the mass urbanisation in the emerging economies which experienced rapid aftermath of the Second World War.
Public transport networks are in need of major the form of scooters and bicycles. Major automotive investment in the US and Europe. It would, however, manufacturers are active investors. Autonomous be a fallacy to suggest that if those investments vehicles (AVs) remain largely confined to the pilot were to materialise, consumer mobility habits would stage but will reach commercial deployments for structurally change. For this reason, the technology logistical use cases in the next three to five years. sector has become as important as governments in Consumer AVs are more complicated, in part because reforming urban transport. they depend on altering innate sociological tendencies.
Across cities, technology and digital transformation These technologies are a matter of when, not if. are being infused with the components of urban How does this shape up as a transformation story? mobility. The ride-sharing model pioneered by Uber Acceptance and adoption will occur over a period of continues to spur further competing platforms and overlapping phases: greater consumer take-up. Electric vehicles (EVs) represent a minority on the road but this is more the • Stage 1: micro-modal (immediate term) result of short-term limitations in battery life and • Stage 2: AVs for business and logistics (3–5 years) charging station availability that will be overcome. Low-speed EVs (LSEVs) are an emerging category • Stage 3: AVs for consumers (5–10+ years) created from scratch by Bird and Lime, principally in
Source: GSMA Intelligence 1 Reforming urban transport requires multiple strands to come together
Vehicles Supporting Municipal infrastructure government Modes of mobility: vehicles, cars, buses, Infrastructure: Cities & people: taxis, trains, drones, buildings, roads, street city governance, EVs, AVs, connected furniture, signs, metro people's attitudes and cars, air fly taxis and bus stations, grid behaviours
Next-gen urban mobility: racing against time 34 Radar December 2018
5.3 Stage 1: micro-modal (immediate term)
This stage is an extrapolation on the current level of change in urban transport models in tier-1 cities of advanced economies but without widescale substitution by business or consumers.
R&D in AV technology continues to intensify, technology parks. The jump to level 4 puts the car in with deployments confined to trials in controlled full control for the entire trip under certain conditions environments. Ride sharing continues to grow but with a human backup driver. Several companies it does not become a viable substitute to public including Waymo, Uber, Tesla, General Motors/Cruise, transport (cost), car ownership or short-term rental Nissan, Mercedes, BMW and Ford are conducting level (convenience). Municipal investment prioritises 4 pilots on public roads under strict conditions, mainly upgrading of public transportation networks and in the US and China. The ultimate shift would be to level reducing air pollution to acceptable environmental 5, where the car has no steering wheel, pedals or driver. and health standards. The headline change is the rapid expansion of micro-modal transport in the form of A striking aspect is the range of industries outside e-bikes and scooters. automotive that have become active investors in AV development. Table 1 shows a list of selected companies from e-commerce to telecoms that have AV hyped; pilots continue engaged in city pilots. This reflects a now baked-in expectation that AV will impact multiple sectors over a Car development has been progressing incrementally period of waves, with automotive and its supply chain towards automation for decades. Most current trials followed by public transport, airlines, entertainment, are on level 3 of autonomy in controlled environments real estate and urban planning. For more information, such as airports, hospitals, university campuses and see Global Mobile Radar, May 2018.
Source: reproduced by GSMA Intelligence based on various sources, including SAE and NHTSA 2 The five levels of vehicle autonomy
0 1 2 3 4 5
No Driver Partial Conditional High Full Levels automation assistance automation automation automation automation
Next-gen urban mobility: racing against time 35 Radar December 2018
Source: Company reports 1 Investments in autonomous vehicles span several sectors
At CES 2018, Amazon announced its activity in autonomous vehicles through a partnership with Toyota.
BMW plans to have more than 40 autonomous vehicles to test on the road in the US and more than 80 worldwide by the end of 2018.
Continental has announced a new partnership with Nvidia to create self-driving vehicle systems, combining Continental’s automobile software engineering with Nvidia’s Drive platform and operating system.
SoftBank Group’s SB Drive, an AV joint venture with research company Advanced Smart Mobility, is conducting trials and testing the commercial viability of fixed- route buses for community public transport, as well as autonomous truck-based freight delivery.
In May 2016, Uber revealed its in-house autonomous prototypes. The company acquired self-driving truck startup Otto later in the year. In August 2018, Uber announced a $500 million investment from Toyota and a plan to jointly work on autonomous vehicle development.
The World Economic Forum estimates that driverless automakers are introducing new vehicles to serve vehicles will generate $1 trillion in economic benefit to the micro-transit area. For its upcoming on-demand consumers and governments over the next 10 years, micro-transit service Moia, Volkswagen has designed and are expected to represent around 25% of the a new electric vehicle concept to bridge the gap global vehicles market by 2040. Before then, however, between taxis, shuttle vans and buses. there are a number of practical and regulatory issues to overcome. Sensory systems and ultra-low latency Meanwhile, lighter alternatives in the form of cellular connectivity (high-end LTE or 5G) are not e-scooters and e-bikes are part of a new category yet available at sufficient scale to guarantee meeting termed low-speed EVs (LSEVs), coined in the wake safety and reliability standards. There is limited of launches from Bird and Lime. Initial adoption rates availability of real-time information on traffic, road have followed a steep S curve, reaching a combined signage and parking required for AVs to navigate and 10 million rides in eight months compared to the two complete their journeys. Companies investing in R&D to three years it took Uber and Lyft to accomplish the and AV trials are reluctant and not incentivised to same figure. LSEVs will gain further traction among share data with competitors or municipal authorities commuters for their ease and affordability, with city on a meaningful scale. administrations taking an accommodative stance given their help in achieving carbon emission targets. Uber has launched a bike and scooter service, called Jump, LSEVs enter the mainstream in the city of Santa Monica. The company wants people to be able to cover a range of distances in the city in a To mitigate pollution levels, city governments are smart, convenient and environmentally friendly way. helping to facilitate the growth of electric vehicles It has also partnered with Lime, whose e-bikes and (EVs) through charging stations and multi-fuel e-scooters will be available to rent through the Uber stations, which provide petrol, gas, hydrogen and app. This is strong evidence that the company sees a electricity. EVs and ultra-low emission vehicles future in multi-modal urban mobility in which it wants (ULEVs), also known as plug-in vehicles, emit to be an early mover, even if this means cannibalising extremely low levels of emissions. Goldman Sachs a part of its own business – as is currently happening estimates that by 2025, hybrid EVs will comprise (see Figure 3). 25% of all vehicles sold, from 5% today. Traditional
Next-gen urban mobility: racing against time 36 Radar December 2018
Source: Reproduced based on original graphic from CB Insights 3 Proportion of trips – Jump versus Uber Proportion of trips Proportion
3am 6am 9am Noon 3pm 6pm 9pm
Uber Jump
Next-gen urban mobility: racing against time 37 Radar December 2018
5.4 Stage 2: AVs for business and logistics (3–5 years)
This stage builds on the micro-modal wave that primarily impacted consumers and marks the point when transport modes used by logistics and distribution businesses are both complementary and substitutive to the status quo.
Drones used for package deliveries will become It is possible that AVs for consumer sale will become increasingly popular as a means of moving goods, available in the next 5 years but this would be heavily particularly for the grocery, postal and logistics contingent on yet to be established regulations. Even sectors. While flying drones may grab the most assuming this came to pass, ownership would reach headlines, some of the most significant trials so far only a small minority of early adopters (less than 5% of have involved ground-based drones – an area already vehicle owners). served by start-ups such as Starship, Dispatch and Marble. The infrastructure challenge Amazon’s acquisition of Whole Foods in 2017 for $13.7 billion underlines its long-term intent in the The biggest challenge to the logistics story of AVs is higher-end grocery market despite scaling back its having the supporting infrastructure in place. Retrofits initial US food venture, Fresh. With 450 stores in the will be time-consuming and expensive. Landing pads US, Canada and the UK, Whole Foods provides a for drones, sensors for AVs, cameras for smart parking, network of mini distribution centres for fresh produce, ticketing systems for automated payments in stations, augmenting Amazon’s presence in last-mile delivery, and sensors that approve automated payments by an increasingly vital (and precarious) aspect of the vehicles must be adapted onto (or into) existing grocery supply chain (as we discuss further in Chapter commercial and residential buildings. In addition, 4 of this report). Walmart has made its own moves, new systems will be installed, such as connectivity acquiring D2C retailer Bonobos and in March 2018 on the street, digital signage, and dedicated fly and outlining plans to offer same-day delivery to more no-fly zones for drones. EV charging stations will need than 40% of US households by the end of the year. In to be ubiquitously available on roads and common both cases, AV technology is the focus of extensive parking points (malls, petrol stations, airports, etc). R&D for the potential time and cost savings in last- Infrastructure funding models and how to cut red tape mile distribution. Deliveries of takeaways are similarly in local planning regulations are significant obstacles suited to commercial AVs. The logistics and postal distinctly absent from debate so far. sector would deploy AV technology in mid-size vehicles and trucks. Uber’s acquisition of Otto is, by the company’s own admission, a longer term bet but it Infrastructure funding models and could potentially use it as a laboratory to extract more how to cut red tape in local planning near-term innovations that could be deployed into, for example, Uber Eats. regulations are significant obstacles distinctly absent from debate so far.
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5.5 Stage 3: AVs for consumers (5–10+ years)
This stage builds on the growth of micro-modal and extends the adoption of AVs in urban distribution and logistics to the mainstream for consumers, inflecting past 50% of new car sales.
This would be the most disruptive phase as ride • existing owners use their car less (only for long sharing becomes a legitimate complement or even journeys), take longer to replace it, or eventually let substitute to car ownership for significant sections of it go out of service (attrition) the population. Paradoxically then, AVs could reduce • some people don’t change at all (older annual car sales: demographic). • an increasing number of people (especially millennials) don’t ever buy a car (non-consumers)
Source: CB Insights 4 Ride sharers more likely to shy away from ownership
27%
22% 23% 20% 21% 17%
8% 5%
Postponed buying a car Decided not to buy a car Sold and didn't replace a car Bought a new car
All respondents Super sharers
There is little doubt the technology side is going to of this scenario needs more than AV technology happen (see Table 2). AVs will be on the road for itself. Consumers need to alter their own transport passenger use in the next 10 years, assuming regulatory behaviours and choices. In short, consumer willingness uncertainties are resolved. However, the disruptiveness must match the ability to use new technology.
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Source: GSMA Intelligence 2 Tech won’t hold up the development of AVs
Factor Risk Comments Technology Low • AV pilots continue to expand in controlled and some public environments. • Logistics deployments provide ready-made test template for eventual expansion into consumer segment. • Virtually all major car manufacturers are active investors. Long-term planning assumes EVs and AVs become default • Lidar sensors are at an advanced stage of development. • Mapping footprints are growing steadily. Regulatory Mid to high • Safety thresholds are not yet defined for testing regimes in most countries where trials are taking place. • Political risks of backlash in the event of safety failures. Monetisation and business Low to mid • With exception of Tesla, the current bill of materials for AVs is model several multiples above even high-end vehicle classes. • Sensors, mapping and compute are the largest part of the cost problem, though each will come down with Moore’s Law.
Platforms and cities need to find common ground
To reduce the number of cars on the road and net Another area of common ground is in creating miles travelled, consumer mobility platforms (e.g. integrated payment platforms that allow people to Uber, Lyft, Didi, Careem) and city administrations have search, book and pay for public transport and ride- to work together. Uber has set itself an aspiration sharing through a common interface. This could, for of becoming the ‘Amazon of mobility’ under Dara example, involve a universal flat rate for unlimited Khosrowshahi. This holds sizeable implications when access to micro-transit, shared vehicles and on- you consider that it could include anything from demand mobility services. Rewards, discounts and ride-sharing to food delivery to logistics. However, if loyalty schemes could act as further incentives. the implicit goal is also to permanently change the way people travel – as Amazon changed the way Whim is a product of MaaS Global, a start-up based people shop – the aspiration is unlikely be realised in Finland that has expanded internationally. Just as in the absence of deep partnerships with municipal Uber has set an aspiration of becoming the ‘Amazon governments. The vast majority of miles travelled by of mobility’, Whim pitches itself as the ‘Netflix of people living in cities are on road and rail infrastructure transport’. It uses a fixed annual price model; users under public ownership. In cities such as New York, gain unlimited access to public transport, taxis, rental London and Paris, public transport systems are already bikes and rental cars, with route planning and ticketing stressed from peak-hour user flows, itself a product handled in the app. The company claims early users of road congestion that makes driving in or around of Whim increased their number of trips on public the inner city a non-starter. However, people could transport by more than 50%, with a corresponding be incentivised to take multi-passenger ride-shares in reduction in private car journeys. Uber and Lyft could autonomous EVs with reliable journey times because conceivably deploy such a model, parlaying their of reserved lanes. Cities would need to front such an core ride-sharing platform into payment for public effort, just as many have done with dedicated bus transport and LSEVs. lanes and congestion charges.
Next-gen urban mobility: racing against time 40 Radar December 2018
The issue is surmountable. After fibre connectivity and internet services, urban mobility is proving to be the After fibre connectivity and internet new battlefield that distinguishes cities as innovation services, urban mobility is proving leaders or laggards. to be the new battlefield that Aside from regulations allowing AVs, the biggest distinguishes cities as innovation sticking point to potential partnerships between leaders or laggards. transport companies and cities is likely to be costs. While it is plausible that cities and, in some cases, Data sharing is a glaring weak spot for all parties. national governments will pay some retrofit and new Cities hold vast reams of data related to traffic, roads infrastructure costs (street furniture, sensors mounted and mobility behaviours on public transport (TFL in on buildings), these will be a minority of the total and London is the largest payment processor in Europe). take years to materialise given fixed budget cycles. Uber, Lyft, Lime and others have corresponding To bring AV ride-sharing to fruition as a legitimate data on their own user patterns. Most of these data complement to public transport and substitute for reservoirs remain siloed. A notable positive is the cars, the private sector is going to need to partly rise of regulatory test-beds where such sharing fund these costs. This means taking the long view: is taking place. In the UK, London (GATEway and that by investing in restructuring urban transport MOVE_UK), Coventry (CITE and Autodrive) and infrastructure, consumer behavioural change towards Bristol (Venturer and Flourish) are example cities. a shared access model will follow over time.
Next-gen urban mobility: racing against time 41 Radar December 2018
6 IN GRAPHICS Are roboadvisors the future of investing?
Are roboadvisors the future of investing? 42 Radar December 2018
6.1 New players on the block
The investment and wealth management tech ecosystem is increasingly crowded and diversified, with roboadvisors now fully embedded in the value chain. Fintech start-ups are driving innovation in roboadvisors, aiming to capture a share of this growing market. Established investment firms are also embracing the new technology, setting up their own roboadvisor services in-house or through acquisitions.
Source: CB Insights 1 Investment and wealth management technology market map
There is growing interest from private investors. Roboadvisors are taking an important share of that Financing of wealth tech is on the rise, with $2.5 billion funding. Since 2013, average deal size for funding of global funding over the last four quarters, a 35% roboadvisor firms has been steadily growing, expected increase year-on-year. Financing reached an all-time to reach more than $650 million in 2018. Investors are high in the second quarter of 2018, at $1 billion. concentrating on later stage funding (Series B, C, D and E are now 60% of investment value), an indicator that the category is maturing towards a more stable growth stage profile.
Are roboadvisors the future of investing? 43 Radar December 2018
Source: CB Insights 2 Roboadvisor funding activity, 2013–2018*
800 40 $ millions 700 35 Number of deals
600 30
500 25
400 20
300 15
200 10
100 5
0 0 2013 2014 2015 2016 2017 2018
Deal value Number of deals
*until November 2018
Are roboadvisors the future of investing? 44 Radar December 2018
6.2 What are roboadvisors?
Roboadvisors are digital platforms that use automation and AI algorithms to produce recommended investment portfolios to individual customers, taking into account investors’ goals and preferences as well as market and asset class performance. Today’s roboadvisors involve three actors: the platform, the investor (customer) and the investment team that creates and rebalances portfolios across the lifecycle of investment. The novelty lies in complementing and eventually replacing client-facing professionals with the roboadvisor interface.
Source: GSMA Intelligence 3 How does a roboadvisor work today? 1 3
The user/investor The user/investor fills in a simple has the option to questionnaire seek assistance through the from digital app professionals
2 4
The roboadvisor The roboadvisor generates a investment recommendation teams regularly of investment rebalance the portfolios portfolios
There is widespread agreement in the finance industry that roboadvisors will play an increasing role in the future of investment management (see Figure 4). Roboadvisors generally carry a lower fee structure and faster set-up time compared to traditional investment management services.
Are roboadvisors the future of investing? 45 Radar December 2018
Source: GSMA Intelligence 4 Roboadvisors companies
Roboadvisor Minimum investment requirements AUM ($, bn)
0.25% per year fee, no minimum balance $13.5
0.25% per year fee, advisory fee on the investment $10
Minimum of $5,000 for automated, $25,000 for hybrid $10
0.75% per year fee. Investment starts with a minimum of £100 $1
0.5% per year fee, minimum account balance $10,000 $1
0.25% per year fee, minimum investment $2,000 $0.7
Non-exhaustive list
Are roboadvisors the future of investing? 46 Radar December 2018
6.3 Roboadvisors will continue to evolve as AI gets smarter
Today, attractive pricing and services play a central role but human expertise in investment management is still required. Looking at the next ten years, the next generation of roboadvisors will be working close to or at full automation, leveraging AI-based platforms. This will make the customer relationship fully (or almost fully) digitised and the service accessible to wider groups of consumers.
Source: GSMA Intelligence 5 Evolution of investment and wealth management service vendors 1900s–2013 2014–now 10 year horizon
Traditional Next Early investment generation roboadvisors advisors roboadvisors
Customer In person Mixed: digital interface and Fully (or nearly fully) relationship investment team support digitised
Customer High/medium net worth High/medium net worth Across all wealth tiers reach and tech-savvy
Technology Basic automation Digital platforms & apps Digital platforms and supervised machine and apps, supervised learning and unsupervised machine learning
Are roboadvisors the future of investing? 47 Radar December 2018
Source: GSMA Intelligence 6 The investment process through next-generation roboadvisors From input… …to output
Understand investor’s goals Shape portfolio, execute trades
Get investor’s input through minimum Automated generation of portfolios, after interaction assessing multiple sources through AI Shape holistic profile based on consumer Adaptive results depending on investor’s behaviour, credit score, desired life goals and complexity of financial life other preferences
Monitor, rebalance, manage across lifecycle
Frequent, automated review of investment performance, elimination of human interaction Conversational systems navigate the investor through the various options and suggest actions to take
AI is the umbrella term that describes all cognitive tools for financial applications. Such applications deploy machine learning algorithms, pattern recognition and predictive modelling to perform portfolio management and create more customer-focused services.
Source: GSMA Intelligence 7 Type of AI tools and objectives for their use in investment management systems
Types of AI tools
Data analytics and Feed and process data from disparate unsupervised learning sources (e.g. newsfeed, various legal Current roboadvisors and regulatory limitations that dier across the globe) Predictive modelling
Facilitate access to investment, educate investors and simplify interaction with Machine learning and professional investment services pattern recognition (e.g. dashboards, voice interfaces)
Cognitive tools in Optimise investments across their financial applications lifecycle — creation, issuance, marketing, execution, post-trade analytics Natural language processing and voice interfaces Develop deeper understanding of the end investor’s goals linked to their real life plans, personal interests and Context-aware systems life events (e.g. marriage, mortgage) Next-generation roboadvisors
Are roboadvisors the future of investing? 48 Radar December 2018
6.4 Implications for traditional investment firms and consumers
The emergence of the next generation of roboadvisors carries a number of technological and sociological implications for traditional investment management groups.
Source: GSMA Intelligence 8 Implications for traditional investment firms, and strategies to follow
Opportunities
Launch digital investment platforms (roboadvisors) either as a hybrid or standalone solution Increase operational eciencies (e.g. automate customer contact, automate manual transactions)
Investment firms vs
Roboadvisors
Strengths Challenges
Can still leverage the human element in the Risk of losing market share from roboadvisor client-advisor relationship, essential in startups with attractive oering reassuring clients in times of uncertainty in Extend customer reach to under-served the markets segments Capability to build internally or acquire In-person customer relationship diminishes; roboadvisors need to re-adjust client-facing teams Ability to hire high-skilled workers Potential cannibalisation of business if launch (e.g. data scientists, machine learning own roboadvisor software engineers) Crediblity of service provided by compliance with regulation
Are roboadvisors the future of investing? 49 Radar December 2018
Next-generation roboadvisors will take a variety of The positive is that the accessibility and personalisation inputs beyond the investor’s investment goals, such of investment platforms have the potential to as credit scores, consumer habits and other owned significantly empower retail investors. The flip side is assets. Perhaps most important are context-aware that consumers will need to take greater ownership systems that factor in personal value sets and ethics in of investment due diligence and understanding legal portfolio recommendations. implications of roboadvisor services.
Source: GSMA Intelligence 10 Using next-generation roboadvisors: implications for users
Users of next-generation roboadvisors
Benefits Greater control of investments Tailored recommendations and solutions Lower and more transparent pricing Wider accessibility, over digital apps
Challenges Basic level of financial knowledge remains essential Limited clarity of roboadvisors' service oerings and regulatory/legal compliance
Best practices Have a clear investment objective in mind and life plans Understand roboadvisors market and oerings
Are roboadvisors the future of investing? 50 Radar December 2018
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