Can Shazam change his standard transformation costume?

Strategies for a successful positioning in competition. Future Telco Reloaded. Consulting DETECON

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1 Future Telco Reloaded Strategies for a successful positioning in the DETECON Consulting competition

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3 Future Telco Reloaded Strategies for a successful positioning in the DETECON Consulting competition

4 Copyright by Detecon International GmbH Cologne

5 Future Telco Reloaded Contents Foreword 7 Telecommunications company at the crossroads between Bitpipe 8 and the pacemaker of digitization Dr. Peter Krüssel 2018 and beyond: Market scenarios for the German telecommunications market 20 Dr. Peter Krüssel, Martin Lundborg, Jan Jochum, Julian Obeloer The Rise of OTT Players and the Search for an Appropriate Response from a Regulatory Perspective Dr. Markus A. Hessler, Dr. Markus Steingröver OTTs versus Telcos: Net neutrality and the erosion of business models 44 Tim Dörflinger, Dr. Arnulf Heuermann Network Resilience and Business Continuity Audits: 58 Preventive Measures to Avoid Costly Network Failures Thomas Kessler, Dr. Werner Knoben, Thomas Wehr SDN and NFV support the transformation of 68 telecommunications companies Vera Markova, Dr. Stefan Schnitter Detecon International GmbH 3

6 Industry requirements as drivers of 5G development 80 Dr. Osvaldo Gonsa How small cells become a success story for operators 90 Peter Krah, Dr Tillmann Eckstein Software-based integrated network planning: Requirements and benefits 100 Lutz Fritzsche, Dr. Mathias Schweigel Network Economics: Is There a Win-Win Option? 110 Dr. Rong Zhao Network Enabled Services IMS-based services create 120 new cross-sector business opportunities Christoph Goertz, Raúl Kuhn Variants of end device virtualization: 132 The cloud phone as an opportunity for network operators? Claus Eßmann, Dr. Peter Krüssel Agile IT architectures for new products Challenges 142 for the CIO Johannes Ewers 4 Detecon International GmbH

7 Future Telco Reloaded The Value of Big Data for Telecommunications Companies: 154 Treasure Chest or Pandora's Box? Dr. Frank Wisselink, Dr. Ralf Meinberg, Tim Horn, Julian Obeloer, Daniela Ujhelyiová Social Media Performance: The End of Business-as-Usual 168 Dr. Winfried Ebner, Sascha Krpanic, Alexander Luyken, Andreas Penkert Management innovation spurs the competitiveness of carriers 178 Clemens Aumann, Sascha Krpanic Digital Customer Excellence as an imperative for customer satisfaction 192 and customer loyalty Jan Grineisen, Amal Haj-Najib, Jens Zimmermann Outlook: Telcos live for always just dramatically different from today 204 Stefan Wilhelm The authors 208 About Detecon International GmbH 216 Detecon International GmbH 5

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9 Future Telco Reloaded Foreword It is well known that new paths arise when walking. The direction in which telecommunications companies are moving today and how they appear will largely determine the future market scenario in which they will find themselves. And exercise is absolutely necessary: ​​The digitization of business and private life is increasing inexorably, data traffic in the networks continues to rise rapidly and the networking of people and things in the Internet of Things is downright exploding. This poses several major challenges for network operators. They have to carry out the digitization themselves, adapt their internal processes, structures and systems for the provision of services and at the same time serve as a platform and vehicle for the digital transformation of all other industries. Their networks become the central production factor and they themselves guarantee the prosperity of entire economies. The responsibility is great, the industry is under pressure. In addition to traffic growth and horizontal price competition among carriers, it is above all the OTT players, the providers of over-the-top services, that threaten the telcos business. Network operators who make the wrong decisions today or who don't move at all will be degraded to mere suppliers of bits and bytes in the medium term and may say goodbye to the end customer market. This is because OTT ecosystem providers such as Apple, Samsung, Google and Facebook are maturing into vertically integrated providers who, compared to telcos, offer a significantly wider range of services. Network operators have a number of possibilities to position themselves today in order to influence the market structures of the future in their favor. In this book, Detecon's telecommunications experts will show you what carriers can and must do in order to exploit the advantages of their current assets as profitably as possible. Accept the challenge and actively shape the future. I wish you an inspiring read that shows you new possibilities and fields of action. Yours Daniel Eckmann, Managing Partner, Detecon International GmbH Detecon International GmbH 7

10 telecommunications companies at the crossroads between Bitpipe and the pacemaker of digitization Dr. Peter Krüssel> Telecommunications companies continue to face enormous transformational needs. > OTTs are positioned globally, horizontally and vertically, and are thus increasing the pressure for change that is already present on carriers. > Out of concern that Europe and telecommunications companies are losing touch with digitization in favor of OTTs, resistance is emerging from industry, but also from politics, the media and consumers. > Detecon recommends that telecommunications companies take measures to position themselves in the market scenario of heterogeneous power play, in which consolidated large carriers compete against the well-known large ecosystem OTTs and a large number of smaller, specialized single-purpose OTTs. 8 Detecon International GmbH

11 Telecommunications companies at the crossroads OTTs increase pressure to change for telecommunications companies Network is King This was the prologue of Future Telco Profitability in telecommunications: Seven levers secure the future 1. This prologue is based on the thesis that the ideally integrated networks for the telecommunications companies of the rotary and are the linchpin of all business decisions. Not only because they could not be substituted by other players in the competitive environment, not only because it would be the original core competence of the network operators and they would not have learned anything else, and not only because the immense staff would otherwise have no more tasks. Rather, we see that the networks, and thus the carriers, are becoming the central production factor and guarantee of prosperity for entire economies in view of the forecast central developments in the digitalization of the economy and private life, rapid data traffic development and the exploding networking of people and things. This presents carriers with enormous transformational needs. On the one hand, you have to carry out the digitization yourself and adapt internal processes, structures and systems for the provision of services. On the other hand, they serve as a platform and vehicle for the digitization of other industries. Your offers enable customers to master the digital transformation in their own business areas. Many telecommunications companies have already completed steep learning curves in recent years and had to adapt to dramatic changes. The end customer prices have fallen drastically with the liberalization, the formerly closed and closely tied to the network service provision and offer formulation has given way to an open world. Today and in the future, the customer decides even more which connection capacity, which communication capacity and which music and TV offers as well as applications he would like to use at which time and at which location from which provider. Technologies such as the Internet Protocol, WebRTC or esim will reinforce this trend. Telecommunications companies, primarily the incumbents, have gradually decoupled or surrendered parts of the added value, usually to the so-called OTT players or, as far as network-related services are concerned, to alternative operators. The central challenges and fields of action have already been presented in the aforementioned Future Telco volume. They range from efficiency issues in the 1 See Future Telco Profitability in Telecommunications: Seven Levers Secure the Future, Detecon Publications, Detecon International GmbH 9

12 Service provision Networks, IT, processes up to monetization topics in the areas of innovation, partnering, differentiation in retail and wholesale. Since then, the priorities for the carriers have not changed. However, from our point of view, the virulence of these issues has increased again. In addition to traffic growth and horizontal price competition among carriers, OTT players represent the central challenge of the future for network operators. We will outline this using a few examples. OTTs on the way to global horizontal and vertical integration Facebook is providing Internet connections in emerging or developing countries as part of the Internet.org 2 project, which is altruistically motivated according to official corporate communications. Recently, however, the initiative has come under fire in India because the free internet connection only allows access to a limited number of websites, primarily Facebook pages or pages from corresponding cooperation partners. Furthermore, Facebook has recently tried to become a direct supplier of information and news through cooperation with media companies. Talks are ongoing with several US media outlets, such as the New York Times, to place their content directly on Facebook. 3 The goal is that Internet users only move within the Facebook ecosystem. If companies, politicians or institutions then want to reach these users, they are also forced to show their presence in this ecosystem. In Europe, WhatsApp, a subsidiary of Facebook, has already entered into a cooperation with the network operator E-Plus from O2 / Telefonica in 2014, in which the data volume generated through the use of WhatsApp is not counted against the volume tariff. Another example of a consistent expansion of the functionalities is the possibility of starting VoIP calls directly from the WhatsApp application using the Android and iOS versions of WhatsApp. Now that WhatsApp has displaced SMS, it can now be expected that this new voice radio Detecon International GmbH

13 Telecommunications companies at the crossroads will make the classic core business of voice telephony disputed with the carriers. WhatsApp has already achieved this in the past by substituting messaging for language. This trend of decreasing telephony volumes and revenues at the carriers will certainly be intensified by the inherent telephony function of WhatsApp. Google, whose search engine has a market share of over 90 percent in Europe, announced at the Mobile World Congress 2015 in Barcelona that it would play a role in the USA as a Mobile Virtual Network Operator (MVNO). The project called Google Fi 4 is becoming more concrete and provides for leasing network capacities from established operators such as T-Mobile or Sprint, coupling them with the existing, publicly accessible WiFi networks and marketing the combined capacities independently to end customers. The aim is to always ensure the best cross-provider and cross-technology connection and to transfer phone calls from one network to the next without interruption. The cell phone number is no longer linked to a SIM card or a device, but is stored in the Google Cloud. A planned encryption of the communication only allows Google to analyze the traffic. The business model and prices will differ significantly from those of the established network operators. The primary interest is likely to be a close coupling of Google end devices (Nexus), the most widespread mobile operating system Google Android, the Google service universe search engine, browsing, map services, various cloud services, smart home, TV and the newly created Google Connectivity to manufacture. In front of the customer, Google could thus appear as a completely vertically integrated provider. Since the refinancing could take place via the data of the user or via advertising, the transport service as well as a large number of the services would in case of doubt be free of charge or significantly cheaper than with the established mobile phone providers. The announcement that Google is apparently in talks with the international wireless operator Hutchison Whampoa about a cooperation fits in with these plans. The aim is to offer Americans calls at national terms regardless of their global location. 5 4 Cf. Say hi to Fi: A new way to say hello Posted: Wednesday, April 22, 2015; see also Mobilfunk-revolutionieren.html. 5 Detecon International GmbH 11

14 In the US, Google is already active in the fixed network through the Google Fiber initiative. The Google Loon project works with balloons floating in the stratosphere, which, as mobile radio cells, are intended to bring Internet access even to the most remote parts of the world. Google and Facebook are thus well on the way to completely covering the value chain (s) that were previously controlled by telecommunications companies in the old world, but are now fragmented and much more complex: The chain is more or less from the front, coming from the customer relationship, backwards rolled up in the direction of infrastructure and connectivity. Both companies appear in the market as completely vertically integrated providers. Compared to the telcos, however, they also offer a much broader spectrum on the service side and, in connection with their original data-centric and advertising-financed business models, have greater design leeway. At the end of 2014, Apple announced that it would equip LTE-capable ipads with esim cards in the USA and Great Britain if the devices were ordered directly from Apple and not via the mobile network operator. These devices equipped with esim allow customers to choose data tariffs from different network operators even at short notice. In the USA, T-Mobile, AT&T and Sprint are involved, in Great Britain the carrier EE. In this way, it would be possible to change a mobile network provider without changing the SIM card, for example when traveling from one country to another. However, the tariffs are determined by the mobile phone providers. The reaction of the network operators to this initiative has been subdued, as they fear the loss of the customer relationship. Amazon is consistently expanding its service portfolio. Once started as a pure mail order company with a focus on individual transactions, the company is pushing for close and permanent customer loyalty through an increasingly diversified and interwoven range. In essence, in addition to the individual transactions, continuing obligations with customers are sought, similar to the business models of telecommunications companies or energy providers. Amazon achieves this, for example, through cloud-based offers (Amazon Web Services), bundled products and a sophisticated loyalty program such as Amazon Prime as well as through a determined expansion of services from a purely individual product-related trade transaction for all possible conceivable product worlds to offers in the TV sector (Amazon Fire TV including own content production), Mobilfunkendge- 12 Detecon International GmbH

15 telecommunications companies at the crossroads (Fire Phone), ebooks and tablets (Kindle Fire) as well as brokerage of household-related services and household assistants (Amazon Platform Home Services, Amazon Echo). Concern grows, resistance forms. The echo that the OTTs generate through their actions is increasing. With a mixture of admiration and fascination, but also disbelief and discomfort, the activities, successes and ambitions of the OTTs are observed and commented on by consumers, consumer advocates, the media, industry representatives from various sectors and politicians. Facebook wants to take over the Internet 6, for example, headlines n-tv with a reference to the entry from The Next Web 7, which explains how Facebook, through its numerous initiatives, offers free money transfers for Messenger users in the USA, online games, and shopping platforms such as TheFind.com, video services and free Internet access in emerging countries through internet.org and existing business areas Facebook as the world's largest social network with around 1.4 billion users worldwide, WhatsApp as the largest messenger service with currently around 800 million active users in April 2015 worldwide and growing by 100 million users every four months, Facebook Messenger with around 600 million active users and Instagram with 300 million users as the most popular photo platform 8 are trying to take control of the Internet. The heated data protection debates in the wake of the NSA affair do not seem to affect the growth of the Facebook family. Alternative providers, on the other hand, obviously have a hard time. For example, the Swiss service Threema, which offers E2E encryption, currently has around 3.5 million users. Der Spiegel provocatively speaks of a new world government that has set up its headquarters in Silicon Valley, and of a new elite driven by content, ideology and less money, which not only wants to determine what we consume, but how we consume and how we live.An elite that not only wants to conquer one industry, but also in March 2015, Messenger becomes a platform for everything, Facebook wants to take over the Internethttp: // technik / facebook-will-das-internet-uebernehmen-article html Cf. and Detecon International GmbH 13th

16 all and that globally. This refers to the founders, company bosses and leading figures of companies such as Apple, Facebook, Google, Uber or Airbnb. 9 In cooperation with the management consultancy McKinsey, Manager Magazin presents a list of the most aggressive companies in the world and predicts an attack on German industry. 10 The TOP 50 on this list are almost exclusively American and Asian companies, with the Chinese Internet giant Alibaba in first place. At the latest since it has become clear that OTTs are increasingly referring to other industries, business models and areas of competence outside of their original core areas such as search engines, social networks or trade, these activities are increasingly taking on an industrial policy dimension. The commitment in areas such as autonomous driving, robotics, drones, health and biomedicine hits the core of German and European industry. In a recent study, the Federation of German Industries (BDI) fears that the most important economic sector for Germany could miss out on the digital revolution. 11 What is required is a kind of concerted European action by politics and business to build a European Silicon Valley and European champions. With CeBIT 2015, the German federal government gave the go-ahead for a national platform for industry, which is to bundle the various association activities of German industry. In France, the association for the industry of the future was set up by representatives from politics, trade unions, business and science. 13 The European Commission in the form of the Commissioner for Competition, Margrethe Verstager, has opened competition proceedings against Google in which it concerns the abuse of market power. The allegations are, among other things, that Google uses its market-dominant search engine to place the results of its own shopping pages prominently in the results list of requested product information and thus to discriminate against competitors. Fer- 9 See Der Spiegel, February 28, 2015, Das Morgen-Land, page 20 ff. 10 Manager Magazin, issue 4/2015, page 30 ff. 11 See the digital transformation of industry, what it means. Who wins. What to do now. A European study by Roland Berger Strategy Consultants on behalf of the BDI, see Detecon International GmbH

17 telecommunications companies at the crossroads are to be investigated as to whether Google was using its Android operating system at the end of 2014 with just over 75 percent of the global market share for smartphones 14 in order to preferentially install its own apps on mobile devices. This was preceded by political discussions in the European Parliament or by representatives of the German federal government, who, in view of Google's market power, even considered breaking up the group. In India, following attempts by Facebook with Internet.org, there was massive criticism from the population of the only selective, Facebook-oriented availability of Internet content, only around 40 Internet pages are accessible free of charge, via the free Internet access and pressure on the company and his cooperation partners to end this strategy and to open up the entire Internet in the interests of net neutrality. The weakening of the network neutrality was previously permitted by the Indian government with the reference to the fact that network operators must be able to refinance the immense investments in a fast network construction in a newly industrialized country with a weak infrastructure. This process is particularly spicy against the background of the regulatory developments on the subject of net neutrality in the USA, Facebook's home country. Here, the regulatory authority FCC recently made a significant shift in the direction of network neutrality, much to the annoyance of network operators. 15 commentators suspect that this was not least due to industrial policy motives. The dominance of the primarily US Internet giants is to be protected. This decision by the FCC is also intended to put pressure on other national regulators. It is interesting that Facebook in the US will benefit from net neutrality in its role as an OTT player, just as Facebook and its cooperation partners in India will benefit from the restriction of net neutrality in India in their role as OTT player and infrastructure provider (vertical integration) wanted to benefit. In Germany, an expert commission set up by the Federal Ministry of Economics has worked out proposals to advance broadband expansion. The key points include so-called temporary regulatory holidays for telecommunications companies that are investing in the construction of new fiber optic connections, as well as state subsidies for underserved areas and a restriction on network neutrality in order to give telecommunications companies the opportunity to exploit the potential of price and 14 cf. Detecon International GmbH 15th

18 Make the most of product differentiation. The aim is to provide all households in Germany with an internet connection with a guaranteed bandwidth of 50 Mbit / s by 2018. EU Commissioner Günther Oettinger, responsible for the digital economy, is working on the establishment of a new, powerful competition authority for the digital platform economy in order to do justice to the systemic importance of market-dominant platform operators on the Internet. 16 This project would thus go well beyond the formulated guidelines of the EU's Single Digital Market Initiative. 17 European telecommunications companies have long been calling for a regulatory framework for OTT players as well. What is required is an opening of the usually closed ecosystems of the OTTs, i.e. end devices, operating systems, cloud-based service offerings in connection with search engines, social networks, and a regulation of services that are comparable to those of the telcos, for example telephony such as VoIP Skype, Facetime, WhatsApp Voice and SMS, i.e. messenger services like WhatsApp. It also calls for the same rules of the game with regard to compliance with data protection regulations. The examples show that there is growing concern around the world about losing touch with the digital economy and digital life with the major Internet-based platform operators, primarily of US origin. Resistance and initiatives are emerging that take innovation-oriented, competitive, regulatory, data protection and tax law measures into account. Urgent fields of action for telecommunications companies For telecommunications companies, the activities of the OTTs result in urgent fields of action. Your core business areas and main sources of income in the area of ​​classic communication services such as voice telephony and SMS / message, but also the supposedly secure infrastructure business, are threatened. Due to the increasing loss of customer relationships and the interchangeability of their key resource, the infrastructure example MVNO activities from Google and esim from Apple, they run the risk of losing out on the role of the 16 Vgl html and cf. Vgl Detecon International GmbH

19 telecommunications companies at the crossroads of so-called bit pipe operators or pure connectivity providers without end customer contact. The more intense the competition among the carriers in a country market, the greater the risk. This competitive field was already described in the first volume of Future Telco as the second of three central challenges for telcos. 18 Those carriers who see themselves on the losing road in competition will gratefully accept possible offers of cooperation from the OTTs in order to be able to survive in the respective markets. Ultimately, the infrastructure-oriented approaches of the OTTs only require one nationwide, cooperative carrier per country. The third major challenge outlined in the previous volume is the immense growth in traffic and the demands for ubiquitous connectivity. This forces carriers to make the appropriate investments in the capacity and coverage of the networks, while at the same time eroding their sources of income. Against the background of the developments and challenges described, Detecon assumes various future market scenarios or market structures. The scenario with the highest expected value (combination of probability and advantage) for telecommunications companies is the so-called heterogeneous power play, in which consolidated large carriers compete against the well-known large ecosystem OTTs and a large number of smaller, specialized single-purpose OTTs. 19 In order to make this scenario a reality, telecommunications companies must take various measures, which are described in the following articles. They can also be assigned to the seven levers identified in the previous volume and supplement the recommendations already made there. We highlight the importance of innovative network concepts such as NFV and SDN and describe them using a specific show case. The demand for sufficient network capacity and coverage by telecommunications companies is taken into account by the subject of small cells and 5G, as is the need for tool-supported, integrated network planning. The concept of network resilience represents a special aspect in this context. 18 Cf. Krüssel, Network is King !, in: Future Telco Profitability in Telecommunications: Seven Levers Secure the Future, 2014, S Cf. Krüssel / Lundborg / Jochum / Obeloer, Market Scenarios, p. 20 ff. In this volume. Detecon International GmbH 17

20 The own innovation activities to be promoted by telecommunications companies are the subject of articles that deal with the topics of network enabled services, the value of big data or smart data for telcos and the proposal of a so-called virtualized end device, the cloudphone or dumbphone. Special attention is paid to handling the OTTs from a telco and regulatory perspective. In this context, the spectrum of possible courses of action between competition and cooperation / partnering is examined. The articles on the future organization and governance of the telcos market areas, on the characteristics of digital customer excellence and on the subject of social media performance provide special aspects of a differentiated market approach. The requirement for greater flexibility in IT-supported performance processes is addressed in the article on the requirements for agile IT infrastructures for new product and partner worlds. 18 Detecon International GmbH

21 Telecommunications company at the crossroads Detecon International GmbH 19

22 2018 and beyond: Market scenarios for the German telecommunications market Dr. Peter Krüssel, Martin Lundborg, Jan Jochum, Julian Obeloer> A method for deriving strategic market scenarios is applied to the German telecommunications market. > Strategic market scenarios are characterized by a driver combination of intense price competition, immense traffic growth, increasing service competition and strict SMP regulation. > Recommendations for action are given for the heterogeneous power play scenario, as this promises the greatest expected value for network operators. 20 Detecon International GmbH

23 2018 and beyond: Market scenarios for the German telecommunications market Objectives of the model and method What are the market scenarios for the telecommunications markets of the next five years? Using the model, we show the spectrum of possible developments in market structures and apply them to the German telecommunications market. On this basis, we can derive scenario-specific recommendations for the positioning and further development of the individual players. The development of this model is motivated by the following questions:> What types of players are there on the provider side? > How can market structures on the supplier side be described? > What are the relevant influencing factors and how do they affect the market structures? > Which market scenarios can be derived from this? > What are the scenario-specific effects on the individual player types? > How should the individual players prepare for future developments? In the following, the model and methodology are presented, applied to the German telecommunications market and various market scenarios are outlined. For the player type network operator, initial recommendations for action for a specific market scenario are presented on this basis. The core elements of the market scenario model are the player typology, the market structure matrix and the market drivers. The typology used in the model distinguishes between four player groups:> Network operators: Fixed network operators, mobile network operators and integrated network operators> Over-the-Top (OTT) single-purpose providers such as Deezer, Napstar, Evernote> Over-the-Top (OTT ) Ecosystem operators such as Apple, Samsung, Google, Facebook and> network operator-independent resellers. The market structure matrix illustrates the position of the individual player types according to size, measured by sales, as well as the number in a matrix whose dimensions are Detecon International GmbH 21

24 sions shows the depth of added value of the players in the fixed line and mobile communications market. The various market scenarios are illustrated with the market structure matrix. In this way, the consolidation trends, the development of the occupation of individual levels of the value chain of the players, fixed-mobile convergence and the shifts between the player types can be described. In addition to the player typology and the market structure matrix, the four market drivers represent an essential element of the method. In their respective opposing forms, the drivers have different effects on the players and their position in the market structure matrix. The four drivers are: regulation, service competition, price developments and traffic growth. Regulation as a driver is important for the market scenarios, as the regulatory initiatives influence the balance of power of the players through competition, access, price and consumer protection regulation. Many initiatives in this area are currently being discussed, including the EU Commission's Single Market Initiative to create a European telecommunications market with pan-European providers, dismantling access regulation and expanding network neutrality regulation, and the EU Commission's considerations against Google proceed by means of competition regulatory initiatives. In the market scenario model, the development is analyzed depending on the country / market in the direction of the dismantling of regulations or, alternatively, in the direction of sector-specific regulation of the telecommunications market Significant Market Power (SMP) regulation with a focus on access regulation at network level. These two directions stand for the pointed manifestations of the driver of regulation. The driver of service competition is basically characterized by the relocation of service provision from the telecommunications networks to the Internet (OTT services), for example through the promotion of network / platform-independent apps and clients. The possible diametrical developments in the model are either the development towards more service competition, in which the network operators only act as bitpipe providers, or a development in which the production of services is more closely integrated into the networks, as was previously the case with classic telephone services Case was. The driver of price competition primarily relates to the development of end customer prices. Here, too, two fundamentally different manifestations can be assumed: on the one hand, a further progression of the 22 Detecon International GmbH

25 2018 and beyond: Market scenarios for the German telecommunications market of intense price competition, on the other hand stagnation or even an increase in end customer prices for telecommunications services. The fourth driver, traffic growth, describes either an exponential growth in traffic volumes in the networks or, as a counterpoint, a flattening growth. The characteristics of the drivers have different effects on the individual player groups (size in terms of turnover and number) and their position in the market structure matrix. For example, it can be assumed that exponential growth in traffic will force the group of network operators to make greater investments in the networks. With intense price competition at the same time, the network operators' revenues and, above all, their margins come under pressure. This in turn promotes the consolidation process, i.e. the number of network operators is falling and the size is tending to increase. In a similar way, hypotheses of the effect of the driver characteristics on the other player groups can be formulated. The likely future effects on the various types of players are synthesized from the core elements of the market structure matrix and market drivers, and possible scenarios are derived. In a first step, different country markets can be clustered depending on the observable and predictable characteristics of the drivers. For the European telecommunications markets, there are certainly different framework conditions and thus driver characteristics as well as different market structures than, for example, for African or Asian markets. In a second step, the defined characteristics of the drivers per country market can be analyzed in their effect on the player groups.The effect of the driver expression relates to the descriptive elements of the market structure: size and number of players of a type as well as position in the market structure matrix. With strong traffic growth, intense price competition, undecided service competition and a tendency towards SMP regulation, network operators only have two alternative options: consolidation versus focusing or niche existence. Or formulated in the nomenclature of the market structure matrix: fewer and larger or consolidation and occupation of resellers and OTT business areas versus fewer and smaller or concentration on a Bitpipe business model. The strategic positioning of the players with an existing driver expression results from Detecon International GmbH 23

26 basically possible market scenarios. These are to be reduced to a realistic set through plausibility considerations with regard to the usefulness of the combinatorics of the player options. In a third step, the realistic market scenarios can be described for the individual countries analyzed and evaluated with regard to the likelihood of occurrence and benefits for one or the other type of player. In the next step, further considerations can be made, which aim, for example, to make advantageous scenarios for a specific player type a reality or to play through and analyze the options and needs for action of individual player types in a specific scenario. Such an exercise could then also be carried out for individual specific companies. An overview of the central elements of the methodology and the interrelationships of the model can be found in Figure 1.Market structures in the German telecommunications market, a retrospective After liberalization in the 1990s, based on pronounced SMP access regulation, the German market in the new millennium was characterized by Figure 1: Model structure Elements of the methodology Overview of the model sequence Starting elements Drivers with impact hypotheses Player typology Player typology Market structure matrix Market structure matrix Clustering TC markets Drivers with impact hypotheses Analysis elements Effects on the player types Clustering TC markets Market scenarios Market scenarios Market structure matrices Source: Detecon 24 Detecon International GmbH

27 2018 and beyond: Market scenarios for the German telecommunications market Consolidation, falling prices, low investment activity and strong traffic growth. 1 This was closely related to the fact that a large number of providers entered the market at the turn of the millennium, which led to pronounced competition. The effects on the market structure between 2006 and 2014 are illustrated in Figure 2. In 2006 there were a large number of smaller, independent, local and regional, primarily landline-based telecommunications providers. There was also a large number of independent resellers. Fixed and mobile networks were strictly separated on the provider side. OTTs were significantly less present, the OTT SPA group was de facto non-existent. The market structure is clearly different in 2014. The convergence of fixed network and mobile communications can be clearly observed on the provider side, either on the basis of integrated networks or through the addition of resale offers. Consolidation has progressed considerably: the number of independent local or regional providers has fallen drastically, resellers have consolidated, and carrier second brands have gained in importance. The landscape of the OTTs has fanned out and its importance has increased significantly. 1 See digitization report of the EU Commission 2014; Annual report of the Federal Network Agency 2013; Federal Statistical Office 2014; Future Telco Profitability in telecommunications: Seven levers secure the future, Detecon publication Figure 2: Illustrative historical market structures for the German telecommunications market Mobile February 2006 Mobile December 2014 Fixed Mobile December 2008 Internet-based Resale Infrastructure Internet-based Resale Infrastructure Fixed = network operator = Reseller = OTT ecosystem provider = OTT Single Purpose Player Fixed Source: Detecon Detecon International GmbH 25

28 Against the background of the model presented for deriving strategic market scenarios, these past developments can be traced back to intense price competition, immense traffic growth, increasing service competition and strict SMP regulation. Market scenarios for the German telecommunications market The application of the model to the German market shows the following characteristics with regard to the market drivers. The trends towards lower prices 2 and increasing traffic volumes 3 will continue to exist. With regard to regulation, due to the EU initiatives 4 and announcements by the federal government 5, we assume that this will develop in the direction of lower SMP regulation and more network neutrality and competition regulation (ex-post control of large providers). The service competition will continue to be very high. The driver combination has the following effects on the various types of players: The increasing traffic volumes in combination with the falling prices are problematic for the network operators. In addition, there is intense competition between services, which leads to additional investments and also puts pressure on margins. Legal regulations that mean less SMP access regulation could have a facilitating effect. This evolution of regulation could further facilitate consolidation. It is therefore likely that the network operators will try to improve the margin situation through further consolidation (option 1: consolidation) with full coverage of the value chain. If this does not succeed, the network operators become fragmented bitpipe providers (option 2: focusing). There are also two alternatives for OTT ecosystem providers. On the one hand, you can continue to focus on the Internet-based service provision (option 1: focus). On the other hand, the OTT ecosystem providers could develop into resellers, which among other things speaks for the introduction of new technologies such as WebRTC or esim (option 2: integration). The OTT single-purpose providers have the choice of either consolidating with the OTT ecosystem providers (option 1: Exit) or continuing to focus on 2 See Federal Statistical Office. 3 See Future Telco Profitability in Telecommunications: Seven Levers secure the future, Detecon publication See, among others, the digitization report of the EU Commission, the 2013 annual report of the Federal Network Agency and statistics of the Federal Statistical Office See, among other things, net neutrality: Federal government wants special services and free Internet from, accessed on Detecon International GmbH

29 2018 and beyond: market scenarios for the German telecommunications market to focus on their core areas (option 2: focus). The second alternative is to cooperate with network operators. Resellers who are independent of the network operator are given little prospect of success in the next few years. The growing importance of the networks due to the growth in traffic, the intense service competition among the OTTs, for example new opportunities through esim and WebRTC and the option to act as an MVNO in the USA based on the model of Google, the falling prices and the decline in SMP access regulation are leading to this that sooner or later resellers will have to leave the market or become victims of consolidation (option 1: exit). In the Detecon market scenario model, a total of eight fundamentally possible, but only six realistic market scenarios result from the various options offered by the players (Figure 3). Scenario 1 (heterogeneous power play) is characterized by consolidated and integrated network operators, strong OTT ecosystem providers and a large number of specialized OTT single-purpose providers. Classic resellers are disappearing from the market in perspective and are being displaced on the one hand by network operators in the course of the further expansion of secondary brands and on the other hand by OTTs in the course of exploiting the possibilities of new technologies. Figure 3: Relevant market scenarios Network operator consolidation Network operator focus on reseller exit OTT ecosystem provider integration OTT SPA focus OTT SPA exit 1 3 Heterogeneous power play Big Player Clash 2 4 OTT Diversity Play OTT big player dominance OTT ecosystem provider focus OTT SPA focus OTT SPA Exit 5 6 Co -Existence Telco Play Source: Detecon Detecon International GmbH 27

30 Scenario 3 (Big Player Clash) is similar, but with the difference that the OTT single-purpose providers exit the market or are taken over by the ecosystem providers or network operators. A market structure arises with large OTTs and large network operators facing each other. Scenarios 2 (OTT Diversity Play) and 4 (OTT Big Player Dominance) are characterized by unsuccessful consolidation by the network operators. In these scenarios, the OTTs dominate both in the OTT segment and in the classic resale segment. The difference between scenarios 2 and 4 lies in the question of whether the small OTTs (single-purpose providers) have market relevance or will disappear. Scenarios 5 (Co-Existence) and 6 (Telco Play) are the most advantageous scenarios for the network operator. While the network operators are consolidating and playing along in all market segments, the OTTs focus on internet-based services. In terms of the relationship between OTTs and network operators, these two scenarios are what was the case about ten years ago. However, we consider such a backward role to be one of the less likely scenarios. Figure 4: Market scenario: Heterogeneous Powerplay Mobile Mobile 2014 Beyond 2018 Internet-based Resale Infrastructure Internet-based Resale Infrastructure Internet-based Resale Infrastructure Fixed Internet-based Resale Infrastructure Fixed = Network Operator = Reseller = OTT Ecosystem Provider = OTT Single Purpose Player Source: Detecon 28 Detecon International GmbH

31 2018 and beyond: Market scenarios for the German telecommunications market From our point of view, the market scenario with the highest expected value (combination of advantages and probability) for network operators is heterogeneous power play. The following figure shows this scenario schematically using the market structure matrices 2014/15 and> Recommendations for network operators The heterogeneous power play scenario has the highest expected value for network operators, which means that we consider it to be relatively probable and advantageous for this type of player. The hurdles to implementation are not insurmountable and the economic opportunities are better than in most other scenarios. The network operators must and can do a lot to ensure that this scenario becomes a reality in the future. In the following, individual fields of action and recommendations are formulated in note form for this purpose: 6> Significant expansion of the capacity of the networks and network coverage to cope with the immense volume of traffic. 7> Consistent, integrated planning, construction and operation of the networks. So-called integrated heavy asset players, i.e. players who can exploit the clear synergies between fixed and mobile networks, have a clear competitive advantage in both areas. 8> Introduction of modern network concepts and principles such as Software Defined Networks (SDN) and virtualization of network functionalities (NFV) to reduce CAPEX and, above all, OPEX. 9> Automation and standardization in production (network technology and IT) with simultaneous flexibility and agility as well as differentiation from the customer, for example through multi-brand strategies, segment or region-specific, time and quality differentiated own and partnership-based offers See Future Telco Profitability in Telecommunications: Seven Levers secure the future, Detecon publication Cf. Krah / Eckstein, Small Cells, p. 90 ff. And Gonsa, 5G, p. 80 ff. In this volume; Petry, Future broadband communication between wishful thinking and reality, S, in: Future Telco Profitability in Telecommunication: Seven Levers Securing the Future, Detecon Publication Cf. Fritzsche / Schweigel, Integrated Network Planning, p. 100 ff. And Zhao, Network Economics, p 110 ff. In this volume. 9 See Schnitter / Markova, SDN and NFV, pp. 68 ff. In this volume. 10 Cf. Ewers, Neue IT-Architekturen, p. 144 ff. And Aumann / Krpanic, Management-Innovation, p. 178 ff. In this volume. Detecon International GmbH 29

32> Systematic development of partnerships with the so-called OTT SPA and opportunistic cooperation with the major OTT ecosystem providers. 11> Consolidation among network operators and cooperation with other network operators via wholesale business models to implement economies of scale and increase quality-assured range and network coverage. 12> Realization of our own open Internet or cloud-based ecosystems, for example in cooperation with the OTT SPA or newly emerging players from the end device sector and through our own innovation activities. 13> Push to the provision and marketing of own data-hungry services such as quality films and the virtualization of terminal functionalities (transfer of the client-server logic from IT to the telecommunications / CPE world). 14> Promotion of lobbying activities to weaken SMP regulation, to create additional monetization options for third-party traffic and to limit the market power of large OTT ecosystem providers. 15 The activities listed here give network operators the opportunity to position themselves for the future and to take advantage of their current assets and position. 11 See Dörflinger / Heuermann, Telcos vs. OTTs, p. 44 ff. In this volume. 12 Cf. Steingröver / Nielinger, Wholesale under pressure and with new opportunities, S and Schmitz, Managed Services before entering the maturity stage Results of a survey, S, in: Future Telco Profitability in Telecommunications: Seven Levers Secure the Future, Detecon publication See Goertz / Kuhn, Network Enabled Services, pp. 120 ff. In this volume. 14 See Eßmann / Krüssel, Endgeräte-Virtualisierung, p. 132 ff. In this volume. 15 See Steingröver / Hessler, Der Aufstieg der OTT-Player, p. 32 ff. In this volume. 30 Detecon International GmbH

33 2018 and beyond: Market scenarios for the German telecommunications market Detecon International GmbH 31

34 The rise of the OTT players and the search for an appropriate response from a regulatory point of view Dr. Markus A. Hessler, Dr. Markus Steingröver> The business models of the OTT providers benefit from the infrastructure of the network operators. Due to the lack of compensation and many other restrictions, these are in a tough cut-throat competition. > To ensure that there is no lack of investments in the networks in the future, regulatory imbalances must be reviewed and new regulatory options introduced. > A minimum requirement is the establishment of coordination procedures between different regulatory authorities so that the regulatory measures are consistent and coherent. 32 Detecon International GmbH

35 The rise of the OTT players OTT business models provoke cut-throat competition The Internet poses a major challenge for traditional telecommunications companies: lowering the entry barriers and using global economies of scale make it difficult for these companies to compete with overthe-top (OTT) providers. An OTT provider with a global presence, for example, benefits from the low costs per MB for storage and hosting services and is in a position to negotiate better content contracts with providers compared to smaller, specialized or local companies. Streaming media are at the center of the business models of the OTTs. However, these are based on the use of the access provided by the regulated operator for streaming media. On the one hand, this results in a loss of revenue for operators, which should be part of a compensation at the wholesale price level. On the other hand, infrastructure providers have to make high investments in the infrastructure for access and core networks in order to meet this demand and the associated capacity requirements. These effects are compounded by the flat rate data plans of the telecommunications business models. Figure 1 shows a summary of the business models behind the OTT use cases. The majority of providers are currently primarily focused on acquiring customers. By using the infrastructure already paid for by customers as part of the flat rate data plans, costs are reduced to a minimum. The assessment of the business models by the investors ensures that capital is available. For many traditional telecommunications services, for which the consumer pays on a user basis, but which do not offer any recognizable advantages over these free alternatives, this means the downfall. Most affected are VoIP services, which compete with voice services, especially international voice services, and messaging services such as WhatsApp, which compete with SMS. Telecommunications companies find themselves in cutthroat competition. And this will tend to worsen: On the Internet application market, applications will emerge that attack other parts of the telecommunications market. Another group that is suffering from lost sales due to OTT players in the Internet market is that of content producers. OTT media services offer flat-rate music or video streaming, i.e. content that was previously offered on a unit price basis. After a major legal dispute about original Detecon International GmbH 33

However, new services are emerging in which the media industry collaborates with OTT providers in a way that is less destructive to the industry and that offers streaming options and high pricing for advertising-free services. The proportion of unlawfully distributed music and videos is decreasing. In the short term, of course, consumers are happy about the impact that OTTs have on the Internet market: In many cases, prices drop to zero, apart from the price of the flat rate for the Internet connection and the bandwidth of the applications offered is increasing by the day Day more extensive. But this market has a major weak point: Investments in future networks are at risk. Figure 1: Summary of the OTT business models OTT Kommunikation If traditional telco services are replaced by a low / no pricing strategy and market shares are gained, it can be assumed that the pricing models will change. Residential users who are evolving into commercial users with VoIP. Services often free of charge; paid PSTN connection; IM annual subscription fee Source: Detecon OTT Medien Content Trading Services Social Media New services are made possible by the Internet. Offer videos and music on demand. Replacement for MP3 / CDs / radio / video shops / pay TV. Private users basic services often free of charge; Advertising; Subscriptions; Pay-per-use strategy New services are made possible by Internet network effects. Gaming replacement for traditional gaming. Target customers Sources of revenue Advertising (targeted based on information about the user); Pay per click; auctioned keyword references marketplaces. Conventional Replace shops with additional sales channels; enable international trade; enable international payment. Companies and private users outsource B2C IT storage and alternative bus models for software / platform / infrastructure provision. Replace traditional business models. Mainly B2B companies; private user margins too; Transaction costs volume-based pricing; time-dependent pricing; Subscriptions New services are made possible by Internet network effects. Collect knowledge about people and sell it for advertising and market research purposes. Private users and corporate users Mainly private users Advertising (targeted based on information about the user); Product placement 34 Detecon International GmbH

37 The rise of the OTT player Up until now, carriers and content have formed a unit: network operators invested in networks because they knew that they could generate revenue by delivering content. And only under this condition and the expectation that excess capacity would always be available did the flat rate tariffs arise. This is no longer the case. The telecommunications companies are paid flat rates for the use of their capacity, so their role is reduced to that of a wholesaler. At the same time, the prices they are allowed to charge for their wholesale services are often regulated in a restrictive manner. In addition, due to the guidelines for net neutrality, they have so far not been able to offer a differentiated quality of service (QoS) with corresponding price differentiation. Profits and thus the incentive to make investments previously resulted from the possibility of receiving payments from the service providers for the use of the networks up to a certain extent including the income from peering / transit agreements, and from the income from the network operator's own provision of services and content resulted. This is no longer the case either. In the special case of cloud services, this problem is particularly acute. Cloud services require a highly resilient network. In order to synchronize data on many devices, there must also be considerable capacity. This in turn requires investments that normally take years to pay for themselves. But the increasing wholesale character of telecommunications companies' business, the internationality of many cloud service providers through which they gain access to many alternative network operators and, not to forget, the emerging demand for data portability, ensure that telecommunications companies no longer have any planning security with regard to income, when making investments. Regulatory imbalances and options for action OTT services, especially the provision of OTT media and content, increase capacity demand. In a competitive market this problem should be solved by the principle of supply and demand. Access providers should rebalance their prices so that they reflect the usage of the data volume. If customers want additional capacity, they should be willing to pay for it. If that is not the case, regulators must carefully analyze why the market mechanisms are failing. If the business models of the market participants, and primarily those of the network operators, are not adapted to the market structures, network investments will decrease. Detecon International GmbH 35

38 In order for network operators to survive in a competitive environment, it may be necessary to change the regulatory guidelines they face. In view of the new market situation, existing regulatory requirements must be re-examined so that a balanced competitive environment with investment incentives can arise. The following regulatory tasks should be considered or reconsidered:> Tariff structures must be redesigned away from flat rates and strict network neutrality and towards data plans that are based on data traffic and service quality. If competition worked, the telecommunications companies would change their tariffs and adapt them to market demand. Since this is not the case, there is obviously dysfunctional competition taking place. There is currently no one-size-fits-all solution for this situation. The real cause is obviously a combination of flat rate tariffs that are based on market assumptions that are no longer applicable, unacceptable competitive behavior on the part of OTT players and regulatory requirements that make it impossible for telecommunications companies to react unhindered to economic changes. A thorough analysis of this malfunction and the implementation of measures to remedy this problem would be a central regulatory task. In many cases, the network operators' wholesale tariffs are subject to tariff regulation. The regulator must take measures to rebalance or even redefine these regulated tariffs and thus enable operators with significant market power to adapt to the changing conditions. > Regulators have been dealing with the question of whether and how new Internet players should be licensed for more than a decade. In this case, the term licensing includes the EU notification procedure, which is linked to certain requirements specifically for telecommunications companies. In determining who should be regulated and how, the definitions are paramount. For example, is an OTT voice provider a voice service provider? Skype takes a clear position here: Skype has no business operations in Singapore [author's note: and nowhere else except in Luxembourg]. Skype users download the Skype software from our website operated in Luxembourg .... Since the issue of security has come to the fore, there has recently been a trend in Europe that is moving away from the light version of regulation . Some EU member states, for example France and Spain, have blocked OTT providers that offer voice services over a landline connection. This was justified with the argument that the OTT provider would then behave like a telecommunications company and thus the same 36 Detecon International GmbH

39 The rise of the OTT player would have to meet requirements, i.e. offer emergency services, legal interception, fulfill universal service obligations and much more. > The core of IP communication is that VoIP connections are location-independent, but depend on a functioning power supply. With a view to disasters and the associated power outage, they are therefore considered to be second class. For example, in an attempt to encourage OTT voice providers to participate in legal interception and emergency call access, the UK offered them geographically bound numbers if they agreed to comply with telecommunications obligations and offer appropriate services. Otherwise, they would be assigned numbers clearly identifiable as unusual telephone numbers. It remains to be seen whether OTT providers see the different numbering as a real problem and whether they can be persuaded to share in the costs, for example of the emergency call services. > Another use case that benefits from this regulatory imbalance is OTT Media. Here it is the classic broadcasters who are subject to strict restrictions in terms of content and copyrights, while the OTT media providers enjoy relative freedom. The situation here is even more complicated due to the convergence of ICT and broadcasting aspects, which in Great Britain led to the logical convergence of the various regulators. Ofcom, the UK media regulator, was established due to the convergence of ICT regulators (Oftel), Spectrum Management (RA), Commercial TV regulators (ITC), Broadcasting Standards Commission (BSC), Independent Radio Services regulators (Radio Authority) and the Established by BBC overseers. In this way, the symmetry of the treatment of the different cases is guaranteed and discussions about the distribution of competencies are superfluous from the outset. > The strict definition of net neutrality, which implies equal treatment of all data packets, is an obstacle for telecommunications companies intending to introduce new business models. When Skype was launched in the UK, several network operators saw their sales dwindle and blocked usage. Ofcom and the EU intervened, however, using network neutrality as an argument to force said network operators to grant access. Only recently, Ofcom and other regulators have begun to distance themselves from absolute net neutrality by publicly acknowledging the need for capacity management through both price and traffic differentiation during peak periods, a circumstance which suggests they are addressing the problems Detecon International GmbH 37

40 with which the network operators are confronted. The potential for differentiated quality-based business models is illustrated by the increasing importance of content delivery networks (CDNs). This promising business model, which is potentially available to network operators, has primarily been used by third parties. 1 OTT providers pay for these services so that the classic network operators can monetize this relationship by offering these services. And since the CDNs are the natural complement to the data transport business, the required know-how is already in place. > Finally, data portability is a regulatory challenge that will exacerbate current imbalances if not adequately managed. This concept is comparable to that of number portability and aims to protect consumers from lock-in effects, especially in the case of cloud data services. The implementation of the consumer protection concept must ensure that all market participants, whether network operators, ISPs, application or service providers, are subject to data portability requirements in order to prevent competition from being distorted. The EU has dealt with this by including data portability as a consumer right in the revised Data Protection Act. In this way, all companies are subject to the same legal requirements. Other Regulatory Options Rather than facilitating the creation of new business models, regulators and decision makers can encourage the rollout of broadband networks through a number of other options that determine the network operators' business models. One option lies in the structural division of the markets for network and service provision. Australia and Singapore have opted for this option and founded broadband companies that are specifically responsible for nationwide coverage of broadband infrastructure. Network operators are then required to buy capacities on a wholesale basis at regulated prices. The 1 These providers offer OTT providers local data storage so that latency is reduced and the consumer's enjoyment of this service is increased. 2 The National Broadband Network in Australia supplies 93 percent of private households, schools and companies with a fiber optic broadband connection (FTTH) of up to 100 Mbit / s. The remaining 7 percent is supplied via radio and satellite connections. Singapore's Next Gen Network works in such a way that companies provide bare fiber optic networks and lines (Opennet) and an active infrastructure (Nucelus Connect) and retail service providers (RSPs) sell these services to end users. 38 Detecon International GmbH

41 The rise of the OTT players The reason for this is that the provision of a broadband infrastructure is not subject to competition and can only bring about an economic benefit with the support of regulatory interventions. Such a major intervention in the market is only recommended if a detailed market analysis shows that a real monopoly situation prevails, which proves to be stable and thus justifies this intervention. If telecommunications companies are reduced to the role of wholesale providers, they run the risk of losing contact with customers. If broadband capacity is perceived as a commodity by customers, brand loyalty will decrease to zero over time. The competition is then exclusively price-based and customers will pick the cherry on the cake from every single service offer. Such behavior will become even more prevalent due to consumer protection activities such as data portability regulations and the market transparency made possible by the Internet. On the other hand, regulatory developments that are moving away from strict network neutrality will in turn allow some differentiations, especially in combination with requirements of the regulators to adequately inform users about the quality differences of the broadband connections, as in Singapore. As the role of Internet services becomes more important in society, the willingness to pay for high quality will also increase in numerous customer segments. Network operators can accept their role as commodity suppliers and adapt their business model accordingly to maximize production efficiency in order to offer broadband connections at a minimum price on the mass market. Or they are looking for options to differentiate broadband delivery and advocate regulatory freedom to operate as a for-profit company. Network operators also have the option of concluding trade agreements with Internet application or content providers in order to offer customers, for example, value-added packages of higher quality. Many operators have chosen a symbiotic approach and formed partnerships with OTT players, one example being Mobily in Saudi Arabia. In this case, the applications are installed on the device from the start and the traffic resulting from these applications is rated zero if special packages are purchased. Even if this does not fully absorb the lost SMS sales, it offers customers an attractive alternative that may increase loyalty. Detecon International GmbH 39

42 Another alternative is for operators to compete with copycat services. Examples of this are the European Rich Communications Suite, with which instant messages, live videos and files as well as presence information can be transmitted and exchanged across all mobile networks, or Joyn 3, a standard for communication services that offers chat options between partnership networks. The reactions of most operators to these competing services show that their market success has so far been rather limited. Other alternatives could be to enter into quality of service agreements with OTT providers in order to offer QoS at a certain price, which is now a possibility due to the rejection of the concept of strict network neutrality, or to use apps as a sales channel for telecommunications services. The role of the regulator in this context is very limited and an example of the existing competitive pressure. A final option for regulators and decision-makers to ensure the rollout and funding of broadband networks is to introduce or expand existing universal service obligations to cover broadband access. This option would include a potential financial contribution for the provision of broadband networks that would have to be borne by all market participants. Coordination and integration of regulation The role of the Internet in business as well as in private life will continue to grow.The variety of Internet applications and digitized business models Figure 2: Unified Internet governance Broadcasting Mail services Financial services Communication services Media law Content guidelines Copyrights Freedom of speech Data protection laws Other preventions Banking rights Commercial rights Data protection Financial market regulation Target customers Unified internet governance Legal eavesdropping Privacy data protection Personal data storage Data protection Data protection laws Source: Detecon 3 Supported by the Ideos Claro operators in South America, KT, LG U +, Metro PCS, Movistar, Orange France and Spain, SK Telecom, T-Mobile Germany and Vodafone Germany and Spain. 40 Detecon International GmbH

43 The rise of the OTT players requires Internet governance and thus the coordination of various regulatory authorities, for example financial services, data protection regulations, broadcasting / publication guidelines and communication services. The coordination ensures that the measures to be taken are consistent and coherent. In some countries, for example in Germany, there are already calls for the establishment of an internet ministry. The establishment of a new bureaucracy is not recommended at this point, but the coordination of the bodies is essential. The convergence of the broadcasting and communications markets means that the convergence of their regulation is the next logical step. As the boundaries between the individual markets are blurred, this would help ensure that market participants are treated uniformly. To verify this hypothesis, the feasibility of this convergence should be assessed and, if confirmed, a single regulatory authority should be established. This initially includes a quantified assessment of the benefits and synergies that result from the merger of the authorities responsible for broadcasting and communication. Broadcasting and communication are already regulated from a single source in some countries. The cost of this convergence must then be assessed before a decision can be made on the feasibility of this plan and political approval can be secured. Then, if necessary, the implementation steps can be initiated. Insights for decision makers and regulators:> Reassessing the broadband market to determine whether the policy rollout goals are economical. Develop or adapt appropriate strategies. > Carry out a review of the regulations that network operators face and redesign the obligations that are deemed necessary. > Examination of whether the provision of special (free) OTT services represents unfair competition and has a negative impact on the development of the market. Take the necessary measures. Detecon International GmbH 41

44> To examine whether a lack of competitive pressure on fixed broadband providers is an obstacle to the functioning of the market. If so, take measures to open up the market to more competition. > Determination of a framework for net neutrality regulations in order to enable commercial service offers and cost-oriented market pricing while at the same time protecting consumer interests. > Update of the license / operating conditions of existing operators and service providers in order to establish a balanced regulatory environment and modernize the network neutrality rules. > Minimum requirement: Establishing coordination procedures between financial services regulation, data protection regulation and broadcasting / publication and communication regulation in order to reflect the convergence resulting from the Internet and to ensure that all regulatory measures are consistent and coherent. The maximum would be the integration of regulation from the converging sectors of telecommunications, internet, media and entertainment. 42 Detecon International GmbH

45 The rise of OTT players Detecon International GmbH 43

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