….all things being particles of a real and rhythmic whole

This was our 16th year at Mobile World Congress (MWC) – and our 11th Amadeus Mobile Dinner, now referred to as “El Clasico” by the local press, where CEOs, investors, entrepreneurs and industry insiders can speak freely and unreported. Here I have highlighted some themes from the conference and discussions over dinner. 

MWC continues to go from strength to strength attracting over 100,000 attendees reflecting the mobile industry’s contribution to the global economy which has now reached north of $3 trillion, equivalent to 4.2% of world GDP. If mobile was a country it would be the fifth largest in the world by GDP, above the UK and not far off Germany. Rightly therefore, this year Congress’ title was Mobile is Everything. Mark Weiser wrote “the most profound technologies are those that disappear”. When a technology becomes ubiquitous it tends to become less visible, you no longer see consumer electronics products marketed as “electricity-powered” or “battery-operated”, for example. With mobile we are quickly getting to this point.

It was a great show this year and I survived the usual 15 km walks around the halls, and the impromptu catch up meetings, thanks to the usual essentials (pictured here). The mobile industry seems to follow a path very similar to Elredge and Gould’s theory of evolutionary biology called punctuated equilibrium which states that evolution goes through long periods of “stasis” followed by rapid changes (cladogenesis) equivalent to “evolutionary quick jumps”. I think that in mobile we are fast approaching an evolutionary quick jump driven by the “digital transformation” of mobile carriers.

Such digital transformation was probably the main theme of the conference with many carriers highlighting their progress in the evolution from communications to digital life services (a great term coined by our friend Richard Windsor). In essence this transformation means carriers evolving from selling the same service (voice + messaging) to lots of customers, to selling lots of services (digital life ones) to the same customers – easier said than done! Whilst Vodafone’s ”Gigabit Society” manifesto had very lofty ambitions, Telefonica had a very simple formula stitched – interestingly – on the backpack of its executives. However, the most impressive change is being made by mobile carriers in emerging markets. Good examples of this are what Telenor is doing in South East Asia in real time mobile marketing after their acquisition of Tapad (I cannot resist sharing here one of Telenor’s commercials – some of the best in the industry), the success of Turkcell with their Bip platform that has attracted 6.5m users in 9 months and MTN – one of our investors – activities in the mobile money space

Some of the key digital transformation sub-themes I observed were:

  • Miniaturization
  • Security
  • 5G Applications 
  • Alternative Access
  • IoT – continued

Miniaturization – the continuing trend towards miniaturization of computing components is well known. Less well known is the acceleration of silicon integration. The two companies at the forefront of these trends at MWC2016 were Intel and, our local hero, ARM. Intel bounced back from 10 years of winning little market share in smartphones and are now one of the thought-leaders in the IoT (Internet of Things) space. Their stand was constantly buzzy compared to Qualcomm’s – the smartphone’s silicon market leader. ARM, probably the key company enabling mobile component miniaturization, gave an impressive presentation on embedding systems on a chip (SOCs). They can now place a “computing processor + sensor + RF” in the dimple of a golf ball. This miniaturization, together with the advent of cloud computing, is one of the key drivers of IoT, which will digitize the physical world by connecting everything to the internet, as CISCO’s ex-Chief Technology Officer explains to McKinsey here – or the other way round.

Security – this was one of the key areas promoted by GSMA at the conference. Just before the show started the battle between Tim Cook and the FBI around security and privacy started to flood press and blogosphere – the best demonstration of the topic for most of the keynotes and fireside chat sessions at MWC. Last year the GSMA launched Mobile Connect – the carriers’ strategy to become the holders and managers of a subscriber’s digital identity. However, security in mobile transactions runs the risk of becoming a transaction tax on mobile operators who would be liable, partially or in full, for breaches of security in mobile transactions regardless of whether they are direct suppliers or merely a channel. Mobile Connect is designed to turn security into a revenue generator and protect carriers direct billing revenues (many digital service providers use mobile carrier’s subscribers direct billing as a way to charge their customers and they share these revenues with the carrier).

Mobile Connect is the standard for carrying out authentication using a mobile phone including two factors of authentication. Factors are either: something unique to you (fingerprint); something you own (your phone) and something you know (the 4 digit code your carrier just sent you via SMS). Gemalto has developed and deployed a Mobile Connect solution and GSMA claims to have reached 2 billion subscribers in one year through this programme. Applications secured via Mobile Connect range from service sign-on to mobile commerce and some mobile banking applications. It is too early to tell how much of a revenue generator this will be for carriers and whether Mobile Connect will be able to reach mobile banking transaction applications – most of which require FIDO compliance – an area which should generate potential investment opportunities. This service strategy extension by mobile carriers into managing subscribers’ digital identity not only protects their direct carrier billing business (a market expected to grow to $12 billion for carriers in the next 6 yrs) but also allows them to own and enhance their subscribers’ profiles which they can better monetize with more targeted mobile advertising. 

5G Applications – last year I wondered if the main application of 5G was simply to showcase the mobile technology prowess of South Korea during the 2018 winter Olympics. This year I found other drivers of adoption. One was the autonomous car – best shown in the following NOKIA demo of 5G in this video below compared with 4G here.

Impressive! Until I found out that the 5G was a simulation using Wi-Fi as the network. Another key 5G application was the remote control of drones and their video transmissions which could be seen in many stands. Perhaps next year I’ll replace my usual stroll round the halls with a drone whilst I enjoy one of the outdoor cafes with a remote control on my lap. Virtual Reality Displays (VRDs) were definitely another key application for 5G technologies. Oculus Rift was one of the main protagonists of the show – thanks in particular to Samsung. Here is the dystopian – and ironic – picture of Mark Zuckerberg appearing at the Samsung Galaxy S7 product launch. In order to avoid motion sickness VRD applications require very low latency (ideally sub 1 millisecond) which is only really possible with 5G if you want to recreate as close to real an experience as possible (real: here -> virtual: below).

 
Alternative Access – this year the main internet players at the show – Google and Facebook – made an even more aggressive play to provide cheaper and/or alternative access to more and more consumers. Although the publicly stated intent is to “bring the internet to the next billion” the convenient consequence is that these players will bring two times “the next billion’s” eyeballs to advertisers. Facebook is seemingly happy to “collaborate” with operators. This year it focused on the Telecom Infra Project (TIP), in effect a programme to “open source” telecom equipment’s development driving down the telecom equipment vendors’ margins and lowering the costs of rolling out mobile networks by operators who could then offer Facebook for free to their subscribers thereby giving Facebook its next billion users. This is a strategy Facebook already successfully applied to the fixed internet world through its Open Compute Project launched in April 2011. The market leaders in the datacentres server market have traditionally been HP and Dell. In April 2011 HP share price was $40, today it is $10; Dell share price was $15 and eventually it was taken private two years later when the share price was trading at $10.9. Somehow I am not surprised that Ericsson and Huawei (combined they have a more than 50% market share of the telecom equipment market) told Mr. Zuckerberg at MWC that they were busy the night of the TIP’s launch cocktail party.

Google on the other hand is trying to execute another of their envelopment strategies. Just as they did in the device world with Android, they are now attempting it in mobile access. With the recent opening up of the 150MHz spectrum in the US for commercial use, Google is pushing – together with a consortium which includes Nokia, Qualcomm, Intel and Ruckus Wireless – the new Citizens Broadband Radio Service (CBRS). CBRS participants (i.e. Google) will be able to build the equivalent of a carrier-neutral wholesale small cells network that could serve all MNOs and offer them the necessary network functionality (roaming, billing and settlement and spectrum management) as a service. With this “Network of Local Networks”, enterprises, venue owners and fixed operators could autonomously (and without owning spectrum) deploy high-quality in-building mobile networks into which different mobile subscribers could roam. This would allow operators to expand their local coverage and capacity without investing in new equipment or spectrum whilst subscribers could enjoy a better mobile broadband experience. Basically, this is Mobile Access served as an on-demand platform. Although silicon is still not commercially available for this band I would expect a CBRS network to be operative in the US from H1-2018. CBRS will need a central database to manage subscribers and spectrum (not dissimilar to a mobile network’s Home Location Register – HLR) and who best to provide this but (surprise, surprise) Google. Voila’, Mr.Carrier! Another brilliant platform envelopment strategy executed around you before you have time to say “Don’t Be Evil”.

IoT – continued – the Internet of Things was one of the key themes of last year’s show. This year there was much more substance, than hype. I think the “IoT’s holy trinity” of low cost miniaturized hardware, almost infinite cloud computing power at increasingly lower costs and the increasing adoption of machine learning to analyse the flood of data generated is leading to some very interesting applications and new markets.

Recent technical evolution has focused on enhancing workers’ mobility and mobile collaboration. The advent of ‘bring your own device’ (BYOD) was one of the triggers. During this period Microsoft has done pretty well re-inventing itself under Nadella, having lost the OS war to Android and after the $7.6 billion write-off of the NOKIA acquisition, as the “mobile productivity company” with a set of great cloud assets (like Office 365) and some good acquisitions.

With the advent of IoT we are facing an “evolutionary quick jump” where the shift is from workers’ mobile collaboration to maximising utilisation of enterprise assets (i.e. better utilization, higher capacity, lower turnaround time) making most production functions’ cost inputs variable, rather than fixed – a micro-economist’s nirvana where most costs become marginal. An interesting application of this is how AT&T is putting – supposedly – 4.5 million sensors in Red Bull coolers and point of sales to monitor “cooler performance data, cooler location, shopper frequency and insight into specific sales activity”. AT&T has been one of the early entrants in this market and began developing capabilities when the space was originally referred to as M2M (Machine 2 Machine). One of AT&T’s main platform partners which helped enable their service offering is Jasper Wireless. Jasper was founded in 2004  and raised approx. $ 200 million over this period. Just before MWC, Cisco announced the acquisition of Jasper for $1.4 billion. It is great to see a team like Jasper’s build a solid, long term business (supposedly the company is on a $120-$150 million revenue run rate) through the usual ups and downs of  a new market (even if these early stages last a decade) and emerge with a great exit based on real business value rather than Power Point value. To my mind, this is a landmark transaction  as it confirms that the market’s potential is large and real. We continue to search for interesting companies in this space.  

Away from the main event, at the Amadeus Mobile Dinner the conversation flowed freely as we shared good food and wine. There was cautious optimism about both the fund-raising and exit markets.  Some of our guests were surprised by the number of start-ups addressing the mobile advertising market despite the dominant market shares of Google and Facebook; others explored which mobile companies could help solve the indoor location/navigation problem. Some wondered what mobile applications subscribers would really be willing to pay for – besides games – if they adopted ad-blockers and we pondered how many connected devices each individual should own for mobile to be really everywhere (consensus was 5 to 10 devices). We picked, via our usual informal poll, the three hottest companies which our guests thought worth getting to know at the show and to add to our dealflow.

On Thursday afternoon, after four very interesting days (and too many coffees) I found myself sitting at Barcelona airport reflecting on the event and the industry. What sprang to mind, which summarized how I felt about it all, was a “recent” quote from a great engineer and tech entrepreneur who, after an amazing career, fell into obscurity and was derided as a “mad scientist” and died destitute (think: CTO founder going through multiple wash-out rounds and in various companies….)

“When wireless is perfectly applied the whole earth will be converted into a huge brain, which in fact it is, all things being particles of a real and rhythmic whole.”  Nikola Tesla – 1926

And finally, for fun …

The two most impressive DEMOS of the WEEK were:
•    The Tile (https://www.thetileapp.com/) – a tiny Bluetooth tracker that finds everyday items in seconds
•    Doro (http://www.doro.co.uk/) – The Swedish company developing integrated smartphones and support services for the growing population of senior and elderly subscribers

Mobile trivia of MWC 2016
Who is currently the most important individual in the mobile apps space? The one that hundreds of millions of users of Uber, Just Eat, Deliveroo, Didi, Google Maps, Tom Tom, Flipkart and hundreds, maybe thousands, of mobile apps rely on?

It is this man.  Lt. Col. Todd Benson – 2nd Space Operations Squadron (2SOPS) Commander at Schriever Airforce Base in Colorado. The 2SOPS is in charge of running the Master Control Station (MCS) whose mission is to manage the Global Positioning System (GPS) satellite constellation for global navigation (….and nuclear detonation detection). The US government created and maintains the GPS and makes it accessible for free to anyone with a GPS receiver (you have one in your phone) – despite costing the US government approximately $1 billion per year

Thought-experiment: now imagine Trump is elected 45th President of the United States and decided to monetise GPS for the US government. A 1/1000 of a $ 0.01 per GPS satellite fix would go a long way to recover GPS’s annual running costs and perhaps even make a dent in the US budget deficit in US fiscal 2016 which is expected to rise to $ 455 billion. Madness or genius?

Andrea Traversone
Amadeus Partner