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Winners And Losers In The Race To Future Revenues

TELCO INNOVATION BENCHMARK

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1TELCO INNOVATION BENCHMARK: WINNERS AND LOSERS IN THE RACE TO FUTURE REVENUESwww.abiresearch.com

Executive SummaryABI Research has attempted to measure telco innovation and benchmark

leading global telcos in their efforts toward next-generation networks

and, most important, toward 5G and enterprise verticals. To quantify telco

technology and business innovation, ABI Research has assessed several

metrics: patent portfolios, 3GPP contributions, open source involvement,

R&D spend, and acquisitions and investments. This report follows a

similar ABI Research report Mobile Ecosystem Leaders and Laggards in the

Post-Smartphone Era: An Analysis of Patents, R&D, and Collaborative Activities

(AN-2512) that aimed to benchmark incumbents and new entrants in the

mobile smartphone arena.

Overall, telcos appear to be complacent about technology innovation and

often delegate this task to their suppliers, mainly the Tier One infrastructure

vendors that can afford massive R&D budgets. However, a lack of technology

innovation may bring great challenges including:

• Reliance on a select number of vendors for technology innovation, which could potentially reduce visibility on potential market disruption.

• Potential disruption from web-scale companies that are far more innovative at both the technology and business model levels.

• Potential disruption by their own suppliers mainly in greenfield markets, including industrial telcos. This environment will require a deep understanding of the market landscape and will be the new competitive environment for 5G.

In order to address new opportunities in enterprise markets, operators may need to act as industry leaders and

drivers behind both technology and business innovation. Failure to do so will lose the trust of key technology

implementers in enterprise markets that are currently undergoing digital transformation. These implementers

are currently eager to commission end-to-end platforms where connectivity typically represents only a tiny part

of the whole solution.

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The period of this analysis is 2009 to 2017. The analysis also focuses on UnTelco innovation—in other words

trying to quantify the involvement of telcos in the non-connectivity business as they are attempting to address

end markets, including the automotive, manufacturing, and entertainment sectors. The following table illustrates

the clear leaders in ABI Research’s assessment and includes scores for overall innovation and UnTelco innovation.

Table 1: Global Telco Innovation Leaders Source: ABI Research

The high-level results of this study are summarized in the following bullets and discussed in more detail in Section

7, which outlines the aggregated view of the whole report.

• China Mobile is the leader in ABI Research’s aggregated innovation benchmark and has recently

upped its expertise in non-telco areas. This may be justified by the intention of the central Chinese

government to place 5G—and telecoms in general—as a key component of its aggressive Made in

China 2025 strategy. China Mobile leads the innovation benchmark by a single point compared to the

next telco. On the other hand, China Mobile is 2nd for UnTelco activities, following NTT DOCOMO.

• NTT DOCOMO is closely trailing China Mobile and is considered the heavyweight in this analysis,

being a leader for patent holdings, standards contributions, and in almost all metrics assessed in this

report. Despite the strong legacy that NTT DOCOMO has, its patent publication momentum is slowing

down, and several telcos are closing the gap in terms of patent publications, while China Mobile has

surpassed the Japanese vendor in terms of UnTelco efforts.

• Following Asian telcos are U.S. Tier Ones: AT&T and Verizon, which hold a formidable position in the

global innovation benchmark.

• European telcos—bar a few exceptions—hold spectator seats in the innovation game, while

Asia-Pacific and the United States lead in terms of patents, standards contributions, and open source

involvement. European telcos should invest more in innovation, especially in UnTelco R&D and be

more visible in the race to 5G and industrial applications.

• Telcos have traditionally relied on infrastructure vendors for innovation, which is a position similar

to the Sword of Damocles: they hold the throne in the current value chain, but are threatened by

web-scale companies and even their own infrastructure vendors.

Rank Telco Overall Score UnTelco Rank1 China Mobile 127 2

2 NTT DOCOMO 126 1

3 AT&T 116 4

4 KDDI 110 8

5 SoftBank 106 5

6 Verizon 100 12

7 Deutsche Telekom 96 7

8 Orange 92 9

9 SK Telecom 89 14

*Note: UnTelco rank describes share of patents filed in a non-connectivity domain for the past 3 years.

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• Despite their constant assertions that they will be a key part of the digital transformation in many

different enterprise verticals, telcos have done little to illustrate tangible efforts to capture innovation

and interest beyond the connectivity domain. On the contrary, Facebook, Amazon, Netflix, Google,

Alibaba, Baidu, and Tencent are constantly investing in adjacent areas, implementing technology that

solves their challenges and becoming leaders in many areas outside their core business domain.

• The clear leader in ABI Research’s UnTelco assessment is China Mobile, which has spent

considerable effort on non-telco patents. NTT DOCOMO is the clear follower, while European telcos

form a fragmented and inconsistent UnTelco innovation landscape.

RECOMMENDATIONSABI Research’s investigation indicates that most telcos spend little on innovation, especially when their internal

R&D budgets are 1% to 2% of their annual revenues. Telcos have come to rely on infrastructure vendors for

innovation, complicating their position in the future enterprise market value chain, which will require expertise

in many more areas compared to their current connectivity domain. Telco competitors are also increasing: even

their own suppliers are starting to compete with them (e.g., through private cellular networks), while web-scale

companies are spending 10% to 15% of their annual revenue in R&D to capture new markets.

ABI Research recommends that telcos should increase their efforts to foster innovation:

• Develop products and solutions for end markets internally rather than relying on suppliers. This can

start by deploying service platforms rather than proprietary hardware, and consolidating technology

platforms, which are often vendor proprietary. This is easier said than done, but telcos must take

more risks to secure their future and grow past their access-driven business model.

• Implement internal open source guidelines and use them throughout their group.

• Telcos must implement an internal governance model for innovation, which includes buy-in from

C-level executives. Only then will an innovation culture become ubiquitous throughout the telco

organization, leading to benefits that telcos may not be able to predict today.

• Telcos should learn about and assess end markets, rather than assume that the transport,

manufacturing, and smart city markets will wait for them to deploy 5G. Telcos have the tools to

address these markets today and become valuable partners rather than simple bit pipes.

• Telcos should diversify their patent portfolios and grow beyond connectivity. This is particularly the

case for European telcos.

• European telcos should follow the examples set by China Mobile and NTT DOCOMO, which are

investing in the future of their business, rather than relying heavily on infrastructure vendors.

Arguably, each telco will have different priorities and pain points to address. However, ABI Research’s analysis

indicates that telco innovation has indeed slowed down in the past few years, contrary to telco aspirations to

become enablers for digital transformation of other industries. ABI Research’s recommendation is to proactively

get involved and foster innovation internally, rather than rely on third parties.

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ConclusionsThe sections above have analyzed each respective domain and outlined the leaders and laggards in each

area. The sections below aim to summarize these benchmarks and present the overall leaders in innovation on

a global level.

AGGREGATED RESULTSThe following table illustrates all aggregated results from this study. The results have been aggregated for the

whole benchmark period, e.g., patents filed and granted have been summed from 2009 up to and including 2017

to calculate the total number of patents held by each telco.

Table 2: Telco Innovation Rankings, Aggregated for 2009 to 2017 Source: ABI Research

CompanyGranted Patents

Filed Patent

Filed Patent Growth UnTelco

Patent Efficiency R&D Investment 3GPP CRs 3GPP Raps OpenStack

AT&T 2 2 19 2 14 5 7 10 4 1

BT 15 13 14 12 12 3 17 14 15 -

China Mobile 5 3 3 5 8 9 15 3 1 3

China Telecom 9 12 4 - 7 15 - 8 10 5

China Unicom 11 11 1 - 6 16 15 9 8 6

Deutsche Telekom 13 10 8 10 13 10 7 5 6 4

KDDI 8 9 7 6 9 8 5 7 7 -

KT 7 4 17 7 5 13 - 11 8 -

LG Uplus 12 15 5 - 1 19 14 16 17 -

NTT DOCOMO 1 1 21 1 17 2 3 1 3 -

Orange 10 8 18 8 15 12 10 2 5 2

Reliance Jio 20 19 9 - - 21 - 18 - -

Singtel 21 21 11 - - 20 9 - - -

SK Telecom 6 6 20 9 2 6 10 15 12 -

SoftBank 3 5 2 3 10 14 1 - 13 -

Telecom Italia 16 17 15 11 16 17 12 6 11 -

Telefonica 17 16 6 - 3 1 4 12 14 -

Telia 18 18 10 - - 18 13 - - -

Telstra 19 20 12 - - 11 6 17 16 -

Verizon 4 7 13 4 11 4 2 13 - -

Vodafone 14 14 16 13 4 7 17 4 2 -

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The analysis above indicates that there are strong trends throughout this benchmarking exercise that does not

necessarily correlate with telco size or revenues. For example, NTT DOCOMO is the clear leader across the board

but does not even approach the largest telcos by size, revenue, or any other metric. Nevertheless, China Mobile

and NTT DOCOMO appear to have the biggest appetite to innovate across almost all metrics studied in this

report. The following chart illustrates the aggregated score for all telcos benchmarked across all metrics. This was

calculated using an inverse rank of all telcos benchmarked across all metrics (e.g., the top telco was awarded 21

points in patent efficiency, etc.).

THE CLEAR LEADERSChart 2 above summarizes results for the clear leaders in this study.

This comparison illustrates that China Mobile and NTT DOCOMO lead in many areas, followed by U.S. telcos and

SoftBank. The notable exception is European telcos, which claim to have a stake in the innovation race, but do not

appear in the top 5. The following sections summarize a few consistent findings from this study.

China Mobile

NTT DoCoMo

AT&T

KDDI

Softbank

Verizon

Deutsche Telekom

Orange

SK Telecom

Telefonica

China Unicom

KT

Vodafone

China Telecom

LG Uplus

BT

Telecom Italia

Telstra

Telia

Singtel

Reliance Jio

0 20 40 60 80 100 120 140

Compound score

Telc

o In

nova

tor A

ggre

gate

d Sc

ores

Telco Innovation LeadersAT&T China Mobile NTT Docomo Softbank Verizon

0

1

2

3

4

5Granted patents

Filed patents

Patent efficiency

UnTelco

R&DInvestments

3GPP Rapporteurs

Open Source

3GPP CRs

Chart 1: Aggregated Scores for All Telco Benchmarks Source: ABI Research Chart 2: Scores for Telco Innovation Leaders

Source: ABI Research

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JAPAN AND U.S. TELCOS DOMINATE

NTT DOCOMO and SoftBank have a dominant presence across most categories, with SoftBank being more

aggressive in investments in areas outside the realm of connectivity. NTT DOCOMO’s involvement in patents (both

telco and UnTelco) and standards contributions is impressive, especially considering the size of the Japanese tel-

co; as such, ABI Research considers NTT DOCOMO a clear leader in technology innovation.

In the United States, AT&T leads in many areas, followed by Verizon, with an exception of investments and

R&D spend, where Verizon leads. However, AT&T has invested significantly in internal expertise and operational

transformation that does not manifest in the metrics outlined in this report. For example, AT&T’s continuous

effort for ECOMP and later ONAP and its own internal drive to transform to a software-driven business must

be commended but cannot be accurately measured since it is not part of a standards contribution and is not

patentable (since it is software). Moreover, AT&T’s open source efforts may not necessarily lead to the benefits

that the telco community is currently anticipating because open source is just entering the telco market. In time,

these will translate to tangible benefits and will then be measurable.

The same can be said for NTT DOCOMO, which has pioneered several technologies and open source projects,

including the Project Ryu SDN controller, which has now been submitted to GitHub, where an open source

community is continuing its development. This further validates NTT DOCOMO’s superiority across the field.

CHINA MOBILE IS BECOMING A GLOBAL LEADER

Although China Mobile is not perceived as the strongest telco in the aggregated results (2009 to 2017), its

performance has been improving across the board compared to its telco innovator competitors in the past

few years, with a few outstanding performance areas in the past 2 years. Moreover, China Mobile cannot be

underestimated in any way, since its size and spending power commands considerable respect amongst

infrastructure vendors, who are the primary drivers of both standards and intellectual property in the telco world.

The Chinese government is aggressively investing in the Made in China 2025 program and 5G technologies,

meaning that 5G may well reach critical mass in China before the rest of the world. This may be further validated

by recent U.S. news that perceives Chinese 5G activities as a threat; these should not be taken at face value but

may indicate the start of a global trend where China Mobile is the clear leader in 5G.

China Mobile also illustrates an interesting pattern: its recent granted patents are 40% in the UnTelco domain,

outside the realm of connectivity. As far as ABI Research understands, this is in-line with China Mobile’s long-term

strategy to focus on industry verticals rather that connectivity alone, paving the way for the application of 5G in

industry verticals through network slicing and advanced Next-Generation Core (NG Core) functionality.

EUROPEAN TELCOS ARE UNTELCO SPECTATORS

The European telco market has a long legacy in mobile communications, with the original GSM standard being

developed, standardized, and initially deployed in Western Europe. In more recent years, the involvement of

leading European telcos has gradually decreased, except for Orange and DT, which have maintained a consistent

presence in both patents and standards. However, the contribution of both—and in fact, all European telcos—is

nowhere near the level of Asian telcos, which are investing significantly more in standards and patents.

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This is particularly the case with UnTelco-related patents, where China Mobile and NTT DOCOMO are clear

leaders. In Europe, Telecom Italia is a leader in terms of UnTelco patent share, but overall, the number of patents

filed by the Italian telco is low. The only notable exception is Telefonica’s leading R&D spend, which may take

place internally and not be publicly visible. However, ABI Research expects Telefonica to be spending for its own

operational transformation rather than UnTelco business opportunities, which may only be addressable in the

long term. On the other hand, China Mobile and NTT DOCOMO are active investors and pursuers of adjacent

markets, which may be a critical knowledge requirement for the next generation of the mobile network.

TELCOS INNOVATION DEPENDS ON VENDORSThe telco analysis performed here has outlined leaders and laggards within the telco community, but this needs

to be put in the context of the whole telco market, including patents and standards contributions. A recent ABI

Research report Mobile Ecosystem Leaders and Laggards in the Post-Smartphone Era: An Analysis of Patents, R&D, and

Collaborative Activities (AN-2512) analyzed patents and standards contributions for key vendors in the technology

arena, including web companies (Amazon, Facebook, and Google) and handset developers (Huawei, Nokia, and

Samsung). The following table illustrates a brief comparison between Google, Huawei, Samsung, and the

contributions of all telcos outlined in this study.

Table 3: Comparison of Patents for Google, Huawei, Samsung, and All Telcos Source: ABI Research

The results are comparable for a single vendor and all telcos, indicating that vendors hold significantly

more technology innovation potential compared to individual telcos. This is a natural phenomenon since vendors

typically sell to telcos or through them to end users (e.g., handsets), but Huawei, for example, has issued twice the

change requests compared to all telcos together and holds a similar proportion for 3GPP rapporteurs compared

to telcos. This means that telcos have largely been complacent about innovation and expect vendors to provide

technology or business evolution for next-generation networks.

LACK OF BUSINESS INNOVATION

The biggest challenge facing telcos is business innovation, or more specifically, lack of it. At the moment, telcos

are discussing network slicing, 5G, opportunities in adjacent markets, and more, but are not clear about the full

potential of these. On the contrary, vendors are now addressing enterprise verticals and in many cases competing

with telcos directly (e.g., through private cellular networks in the manufacturing, mining, and utilities markets), just

because telcos illustrate inertia and are unable to address the long-tail of enterprise use cases that vendors can.

Company Patent Publications 3GPP CRsGoogle 12509 -

Huawei 29290 7384

Samsung 59636 1331

All telcos 55759 3913

*Note: 2013 to 2017 for patents, 3GGP Rel.11 to Rel.16 for CRs

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Telcos are familiar with mobile broadband and access-based business models, mainly targeting the legacy market,

and thus capable of understanding, deploying, and selling 5G for the eMBB use case for consumers. However, this

is not the case with the massive machine-type communications (mMTC) and especially with the ultra-reliable and

low-latency communications (URLLC) use cases for 5G. ABI Research’s innovation benchmark would illustrate a

massive spike in terms of UnTelco activities if telcos were actively developing in these areas but the analysis does

not indicate increasing activity in the non-connectivity business.

This is the biggest challenge for telcos: they rely on third parties for innovation in general, including business

models, rather than understanding potential markets, creating their requirements, and then pushing these

to vendors. At the moment, telcos are complacent and relying on vendors to understand these new business

opportunities, and in a way, limiting their potential to the extent of vendor capabilities. This may mean revenue

and business security for big vendors, but it may also mean limited business model innovation for telcos and

a possible return to their established access-based business. This will potentially delay the rollout of 5G and

ultimately degrade the role of telcos to utilities and potentially harm national economies that have positioned 5G

as a growth driver.

The most important question for telcos is this: if they rely on infrastructure vendors for innovation, what will

they bring to the enterprise market value chain that other companies cannot? This is a critical question to answer

before 5G, since telcos are aiming to provide much more than just connectivity. ABI Research aims to assess

these telco challenges and outline their attempts to capture end markets. This will be part of the Telco Digitization

practice and outlined in future UnTelco reports.

CAVEATS AND FUTURE WORKThe analysis presented below is a high-level benchmark of operator innovation capabilities and indicates their

position in the future UnTelco domain, where enterprise vertical services become the competitive environment

for Tier One telcos. There are clear trends on the leaders and laggards of the innovation race, where NTT

DOCOMO, SoftBank, China Mobile, AT&T, and Verizon are clear leaders. Nevertheless, it should be noted that this

analysis is performed under caveats, including the following:

• Patent analysis is a moving target, especially since patent offices continuously publish or grant new

patents. Also, certain patents may be much stronger than others, and this is particularly the case for

UnTelco activities.

• In many cases, software is not patentable, and this complicates the public dissemination of software

innovation undertaken by many telcos worldwide. Web giants are using software to their own benefit,

often creating open source communities themselves. Telcos, on the other hand, are far too early into

this journey, and it is not yet clear whether they can use software to reap the benefits that web-scale

giants have.

• Certain telcos may be developing and implementing innovation internally and not expose it publicly.

This could explain Telefonica’s highest R&D budget, which is attributed to its internal operational

transformation. This will ultimately lead to business innovation and may mean that Telefonica will

emerge as a leader in the telco innovation race.

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• Open source contributions are fragmented, and telcos have not implemented a corporate strategy

to manage internal open source activities. Future versions of this report will aim to understand open

source activities in more detail, including open source projects started by certain telcos.

Future versions of this report will include more granular analysis and further understanding of all metrics, but the

results outlined in this report are not expected to be radically different compared to a more granular analysis.

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Published February 16, 2018 ©2018 ABI Research

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