Inside telecommunications Issue 11

Service innovation

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The smart home opportunity

The smart home concept remains nebulous to many. As it currently stands, the smart home is characterized by the ability to automate, control and interact remotely with household appliances and electronic systems.

As households aggregate various devices, carrier network reach and penetration rates improve, and the need for expensive wired home automation systems is increasingly eliminated, the opportunities to redefine home security systems, utilities provision, health care and entertainment services increases.

As a result, home security specialists, technology giants, telecommunications operators, cable players and utilities all have designs on emerging needs in the home, and revenues generated by innovative residential services are expected to rise in years to come, both in terms of hardware and services.

Operators have advantages that they can leverage in the home automation space:

  • Well-established residential customer bases
  • Credible household brands
  • Substantial marketing budgets

Consumer research suggests promising levels of customer interest. One report found that 14% of all US broadband households are “highly interested” in receiving home security services from their ISPs. Furthermore, EY research recently conducted on the UK residential market found that 27% of respondents were interested in remotely controlling devices in the home:

Operators will need to fine-tune their strategies, depending on whether they are cross-selling opportunities into existing customer bases or targeting a wider addressable market through platform- or device-led innovation.

Partnerships with equipment and software suppliers must be durable, while legacy players offering high-end customizable systems and over-the-top (OTT) players combining cheap sensors and smartphone apps will also have a say in how the market develops.

Operators target cloud software gains with small businesses

Enterprise demand for cloud services continues to rise, and worldwide spending on public IT cloud services is expected to more than double in the next four years, reaching US$107b in 2017.

The software-as-a-service (SaaS) segment is set to remain the dominant category within cloud services over this period, although both infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) are set to account for a greater share of the cloud market in years to come. The global market for cloud software is expected to grow at 23% CAGR between 2012 and 2016.

For operators, greater visibility in the cloud software market is important. While information and communications technology (ICT) providers have historically underserved small businesses, their demand for cloud offerings is strong, particularly among organizations with fewer than 100 employees:

EY – SME adoption of cloud-based services

The most effective strategies will add value through new combinations of voice, data, mobility and cloud applications. Flexible provisioning will be paramount, given that the number of SaaS applications used by a single business is trending upward.

Larger carriers will need to consider the balance between providing cloud software directly or as a channel to SMEs. Such a proliferation of business models will put an onus on operators to carefully segment their target customers, identifying which approaches represent the most cost-effective routes to market.