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Telecoms in a convergent world - Emerging issues

  2. 1. Telecoms in a convergent world 2. Big Data and its implications 3. M2M and the Internet of Things 4. Digital content and video streaming 5. Growing use of strategic alliances 6. Conclusions Content 2 Dr Martyn Taylor Partner +61 45 777 4711 (mobile)
  3. 1. Telecoms in a convergent world 3
  4. The historic view of convergence • Digitisation of content combined with increasing use of standardised Internet-based (data packet) delivery mechanisms. • Vertically-integrated delivery mechanisms replaced by ‘hourglass model’. • Increased computing power and more powerful consumer applications • Result: convergence of telecoms, IT, radio/TV broadcasting, print media, etc Device can accept all forms of digital content and deliver to consumer Content Consumer
  5. Disruption of legacy business models
  6. But digital disruption is now arising from a confluence of enabling technologies… Broadband High-speed Internet access ADVANCED DEVICES AND COMMUNICATIONS Smartphones Affordable pocket supercomputer Digitalisation Digital encoding algorithms SOPHISTICATED OPERATING SOFTWARE iOS / Android Operating system software E-commerce Transactions via digital platforms SIMPLE AND USER-FRIENDLY INTERFACE Apps User-friendly application software
  7. Not just telecoms… ‘software is eating the world’
  8. Telecoms is at the epicentre of disruption… 8 Telecoms Software Telecoms Software Software
  9. …and innovation is clearly outpacing regulation • Continued innovation and convergence across TMT is driving the launch of ever more complex and convergent communications and digital services. • Modern communications services often now include a combination of: • In contrast, regulatory models in most jurisdictions still apply regulation based on traditional ‘silo’ models for each regulated sector. • Licences are required if particular statutory criteria are met, such criteria often based on a pre-convergence view of the world. • Local regulators frequently have substantial discretion in the manner in which their regimes are interpreted and applied. • The mismatch between innovative TMT services and legacy regulation raises challenges for advisors and gives rise to real regulatory risk. • web-based interfaces, • cloud applications, • foreign data storage, • cross-border connectivity, • voice over Internet Protocol, • video imagery, and • interconnectivity to legacy telecommunications services and digital media content. Innovation – 21st century products Regulation – 20th century models 9
  10. 2. Big Data and its implications 10
  11. What is ‘Big Data’ ? 11 ‘Big Data’ is (i) the capture of information on a large scale; (ii) the application of powerful analytical computing to that information, then (iii) the use of that analysis to generate value
  12. The vision for ‘Big Data’… 12 "Now we stand facing a new industrial revolution: a digital one. With cloud computing its new engine, big data its new fuel. Transporting the amazing innovations of the internet, and the internet of things. Running on broadband rails: fast, reliable, pervasive “ “Take all the information of humanity from the dawn of civilisation until 2003 - nowadays that is produced in just two days.” “That is the magic to find value amid the mass of data. The right infrastructure, the right networks, the right computing capacity and, last but not least, the right analysis methods and algorithms help us break through the mountains of rock to find the gold within.” Big Data is a catalyst for innovation, as consumer needs can be better identified and addressed
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  15. Capture of information on a large scale… 15 Legal issues – data privacy
  16. Storage of that information… 16 Legal issues – data breaches • Ensuring the security of information located in data centres is already a key issue, raising legal responsibility and risk allocation issues. • UAE: DIFC Commissioner of Data Protection appointed under DIFC Data Protection Law. • Consequences of a data breach can extend well beyond legal liability to include reputational damage, cost in management time, loss of business. • Moreover, the mobile phone itself has become a means of identify verification, particularly for banking. • Phishing and SIM cloning has become a means for fraudsters to take control of mobile devices, causing real issues for telcos.
  17. Processing of that information…. 17 Legal issues – data sovereignty • The export of personal data from one country to another country can present unique challenges. • In an environment of cloud computing, the export of data to offshore data processing centres is a reality of 21st century commerce. • Integrated telecoms products and services may have a cloud computing or data processing component • Export of data can be affected by employment laws, healthcare legislation, banking laws, and laws specifically passed to block the transfer of information for certain purposes. • Location of information is also relevant to the operation of statutory notices in regulatory investigations.
  18. Generation of value…. 18 Information secrecy • Contract: contractual protections to maintain confidentiality and prevent misuse of information. • Secrecy: IP can be practically protected by maintaining secrecy Databases • Copyright: is a database a literary work and therefore subject to copyright protection ? Software and algorithms • Copyright: source codes and object codes; sometimes algorithms • Patents: software and algorithms normally cannot be patented Legal issues – protecting IP rights
  19. 3. M2M and the Internet of Things 19
  20. The Internet of Things (IoT) MVNOs and M2M – Mobile telecommunications in 201520 • Moore’s law is unleashing low cost, high processing power, tiny chips that can be put into anything from a power outlet to a water pipe. • A ‘thing’ can therefore be controlled by an Internet-activated micro-computer with its own IP address. • Wireless networking technology is lowering the cost of communications to the point where most ‘things’ can be connected inexpensively. • The rise of ‘big data’ makes the cost of storing large-scale data trivial compared to even a few years ago. • As a result, it is economic to integrate things with processors and connect them to the Internet, to realise substantial benefits, including via real-time data capture and control. • Powerful applications have the ability to co-ordinate the various ‘things’, leading to the industrialisation of the Internet.
  21. The M2M business model 21 • Machine to machine (M2M) is the name given to a range of technologies that permit information to be exchanged automatically between machines or devices, without human intervention. • M2M has existed for many years (eg SCADA). However, greater use of low-cost broadband wireless and Internet applications is now driving innovation and rapid M2M market growth. • M2M covers a broad range of technologies and applications and has provides significant further potential for business innovation: • Greater ability to collect more accurate information. • More timely (including real-time) information flows. • Automated diagnosis and implementation of solutions. • Greater ability to react to information, providing greater control. • Overall, greater efficiency and quality in service delivery.
  22. Elements of the M2M / IoT process 22 An M2M process involves a number of discrete stages: • the collection of a data event by an autonomous hardware device, such as a sensor or meter; • the transmission of that data through a wireline and/or wireless communications network; • the receipt and analysis of that data by another autonomous device (sometimes as part of a set of data from multiple autonomous sources) using a telemetry-based software application; • the translation of that telemetry into meaningful information, including computer-generated directions given to further machines or humans.
  23. Customer expectations are driving industry innovation 23 Embedded SIM: • In the M2M market, a SIM may not easily be changed via physical access to a device or may be used in an environment that requires a soldered connection, thus there is a need for ‘over the air’ provisioning of the SIM. • The GSMA’s Embedded SIM Specification provides a single, de-facto standard mechanism for the remote provisioning and management of machine to machine (M2M) connections, • Allows the “over the air” provisioning of an initial operator subscription, and the subsequent change of subscription from one operator to another. Customer expectation Industry innovation Malfunctions in devices can be quickly distinguished from network malfunctions. Replacement of customer helpdesks with on-line network status reports and diagnostics. Switching devices to different networks without swapping SIM cards. Embedded SIM cards with remote activation. Switching devices to different networks during a home network downtime. Domestic roaming where the home network has an outage. Integrated M2M connectivity platforms, devices and software solutions. Joint ventures and alliances between telcos and other suppliers of M2M solutions, including M2M MVNOs.
  24. M2M growth forecasts – a USD 1.2 trillion market 24 Source: Machina Research (2012) • Currently around 2% of mobile connections, by 2022 this will increase to around 22%. • Global M2M revenue forecast to increase from USD 200 billion to USD 1.2 trillion, of which around 10% involves connectivity and associated services. • M2M data traffic usage is expected to remain low, at around 1 - 2% of network traffic.
  25. Existing and future applications of IoT 25 Automated provisionin g Remote monitoring Middle East ‘smart cities’ initiative security systems and monitoring intelligent transport networks smart metering for utilities smart medical devices traffic management inventory management Areas of future innovation may include… • ‘just in time’ inventory monitoring • law enforcement and surveillance • tailored insurance premiums • tailored products and marketing • anticipatory healthcare and support • asset geotracking and monitoring • preventative maintenance • intelligent and networked cars • intelligent houses and appliances • information-intensive micropayments
  26. Potential huge range of applications for IoT MVNOs and M2M – Mobile telecommunications in 201526
  27. Legal and regulatory issues for IoT 27 • Common issue in 21st century telecoms are regulatory systems based on 20th century technologies. Pace of technological innovation has far exceeded pace of regulatory change. • While many legal issues are common to other technologies, there are some nuances and issues that are unique to the M2M environment. • Key issues: • spectrum management; • device certification; • numbering, • data security and privacy; • contractual liability. • Also market liberalisation issues such as regulatory restrictions on roaming and restrictions on the use of MVNOs, as well as general competition policy where mobile operators refuse to provide access.
  28. Spectrum management for IoT 28 • Key implications for spectrum policy: • greater flexibility in use of spectrum (technology neutral); • spectrum usage locked in for longer periods (e.g., 2G devices). • If an operator does not hold its own spectrum and wishes to sell M2M services, it would be necessary to enter into an MVNO or resale arrangement with an existing operator – see later slides. • Many existing wireless standards are optimised for traditional mobiles (high data rates with fewer devices), but would have difficulty supporting M2M (low data rates with many devices. • Some jurisdictions are considering allocating spectrum specifically for M2M purposes (e.g., US – auction in 2014 for 3.5GHz band). • Global industry standards are evolving, including in the context of LTE, to carve out a niche for M2M decides (e.g., low cost devices that use half duplex or single receivers on lower power levels).
  29. Device certification for IoT 29 • Most jurisdictions require certification of radiofrequency devices with certification requirements varying between regimes. • There are typically three layers of regulation: (a) regulator approval; (b) industry standards association approval; and (c) operator approval. The latter is often the most difficult to obtain.
  30. IoT Case Study - Embedded SIM cards in BMWs 30 • During 2012, Vodafone and BMW announced a five-year deal to fit all BMWs with mobile SIM chips for telematics services. • The deal involves fitting SIM cards within the vehicles at the assembly plant, so they are embedded in the vehicle during manufacturing. • The SIMs are built to last up to 10 years. • The SIMs allows BMW to roll out a host of new services on its ConnectedDrive platform including automatic emergency call, remote locking and unlocking using the smartphone app, 24/7 concierge service and TeleService which provides direct communication to the auto-maker for vehicle maintenance and diagnosis purpose. • A range of similar deals have subsequently been concluded with other car manufacturers. • Question: Is BMW therefore a mobile reseller?
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  32. IoT disruptive potential – the ‘Smart Grid’ 32
  33. 4. Digital content and video streaming 33
  34. Increasing speeds driving different applications 500kbit/s to 1Mbit/s VoIP SMS Basic e-mail Simple web browsing Low-quality video 1 to 5 Mbit/s Complex web browsing Email with attachments Remote surveillance IPTV SD (1-3 channels) Simple telecommuting Digital broadcast (1 ch) Streaming music 5 to 10 Mbit/s Complex telecommuting Large file-sharing IPTV SD (many channels) Switched digital video Video on demand SD Broadcast video SD Video streaming (2-3 ch) Video download HD Low-quality telepresence Gaming Basic medical file sharing Basic remote diagnosis Remote education Building management 10 to 100Mbit/s Telemedicine Educational services Broadcast video SD/HD IPTV HD Complex gaming Complex telecommuting Complex telepresence Surveillance HD Intelligent buildings 100Mbit/s to 1 Gbit/s Telemedicine HD Multiple educational Broadcast video full HD Full IPTV channel support Video on demand HD Gaming (immersion) Full telecommuting 1 to 10 Gbit/s Research applications HD telepresence Digital cinema streaming Complex telemedicine Scientific remote control Virtual reality Terabyte file sharing Remote supercomputing BASIC BROADBAND HIGH SPEED BROADBAND SUPERFAST BROADBAND The UAE is a world leader in broadband penetration, so can also lead in new applications
  35. Media sector is experiencing dramatic reform… Historically, advertising supported the delivery of subsidised content. Now, a proliferation of business models…
  36. 36 Streaming of content over mobile devices…. Quote from Deloitte
  37. 37 … but premium content can be expensive Legal issues – exclusivity • The market for delivery of content to consumers is becoming crowded, conferring greater market power to content creators. In turn, this is driving up the price of premium content. • In such an environment, the firm with the deepest pockets can often use exclusivity to lock up critical content. Telecoms operators have historically been active in the content market, but are now being challenged by global Internet giants. • Is regulatory intervention appropriate or desirable?
  38. 38 … and piracy of content remains a real issue
  39. 5. Growing use of strategic alliances 39
  40. Example – Indosat Ooredoo in Indonesia 40 “Indosat Ooredoo and Indovision Establish Strategic Partnership” (2016) Delivery of content from Indonesia’s largest pay TV operator over Indosat’s 4G LTE network Also…. Twitter (mobile recharge); GoSwiff (electronic payment); Fortumo (direct carrier billing); iFlix (OTT multiscreen TV); Ericsson (M2M platform); Arsenal (soccer content); DoCoMo (embedded SIMs); Google (Google Play) “Indosat, Lintasarta, IBM team up for cloud service” (2015) Partnership for the delivery of joint cloud and telecoms solutions to corporate sector.
  41. JVs and alliances – both risks and rewards 41 • Outright acquisitions – especially if buyer has limited experience – can be risky • Joint ventures can reduce financial, cultural and/or political risk and give investor time to understand local market • Local partners can benefit from international expertise of investor Risk sharing for new markets • Increasing number and complexity of such regimes is driving investors increasingly to joint venture structures • In some jurisdictions foreign investors can only hold a maximum of 49% interest • Use of trust arrangements also employed Antitrust and foreign ownership regimes • Propensity for local partners to want to litigate in their domestic courts – can be slow and bureaucratic • Procedural inefficiencies and corruption can make litigating disputes challenging • Law may be applied in unfamiliar way • Different jurisdictions take different approaches to dispute resolution clauses Disputes
  42. Practical issues to consider… example of JVs 42 • JVCo retains a certain degree of autonomy – may not be fully integrated • On-going commercial relationship with joint venture partner – legislation may view client as benefitting from improper actions by its joint venture partner • What is the rationale for entering into the joint venture? • Rights/access to information is generally limited Risks of joint ventures generally higher • Detailed warranties on ABC/mutual undertakings by parties to comply with ABC laws etc. • Right of access to certain information re adequate ABC policies/procedures -– in particular involvement in audit committee Protections to consider including in JV agreement • Training for JVCo employees who are identified as subject to high ABC risk by virtue of their role • Ensure JVCo has appropriate ABC policies in place • Appointment of own employees to key roles as a compliance tool? Rotation? • Consider JVCo’s whistle-blower procedures/process Other practical steps for consideration ABC = Anti-Bribery and Corruption
  43. Strategic alliances - healthcare and telecoms 43 • Huge opportunity provided by Internet of Things and M2M • Growth in wearable devices, such as the Apple Watch • Broadband wireless is now facilitating mobile health and remote access to healthcare
  44. Strategic alliances - transport and telecoms 44 • Again, huge opportunity provided by Internet of Things and M2M • Growth in embedding of computers and Internet into cars, such as Tesla • Broadband wireless is now allowing networking of cars and autonomous cars
  45. 7. Conclusions 45
  46. Key points from this presentation 46 1. Convergence in telecoms/media/IT has created integrated platforms that are now driving software-driven disruption throughout the global economy. Telecoms is well positioned to leverage this disruption. 2. Regulatory models are not keeping pace with innovation, creating risks but also a new generation of issues associated with Big Data, M2M/IoT, and digital content. 3. In the context of Big Data, telcos face an increasing focus on data privacy, data protection and security, data sovereignty and protecting IP rights. 4. In the context of M2M and IoT, telcos face interesting issues in applying historic licensing models to new integrated products, including embedded SIMs in vehicles and smart grids. Issues are also arising in spectrum management and device certification. 5. As broadband penetration has increased, delivery of streamed digital content has become popular, but has lead to a proliferation of business models and a spike in the price of content. In turn, this has placed greater emphasis on content exclusivity issues and digital piracy. 6. The overlaps between different sectors are creating much scope for strategic partnerships, JVs and alliances. However, while opportunities exist, so do risks and there are many practical issues to consider.
  47. About Norton Rose Fulbright 47
  48. • World’s third largest legal practice with more than 3,800 lawyers in 53 offices. • We have a global focus on six core areas of expertise, including technology & innovation. • Our reputation is to provide high quality and commercial advice, yet to be friendly and approachable. 48 Geographic breadth and friendly reputation
  49. 0 Contact us Dr Martyn Taylor Partner / Head of Telecoms (Asia-Pacific) +61 2 9330 8056 +61 45 777 4711 (Mobile) Profile: 2185357249 Norton Rose Fulbright Australia is a law firm as defined in the Legal Profession Acts of the Australian states and territory in which it practises. Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members (‘the Norton Rose Fulbright members’) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients. The purpose of this communication is to provide general information of a legal nature. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.