Market Insight Connected Dig 239709

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Market Analysis and StatisticsG00239709

Market Insight: Connected Digital Service

Revenue Opportunities for Vendors WorldwidePublished: 5 October 2012

Analyst(s): Jean-Claude Delcroix, Kathie Hackler

Technologies and service opportunities are growing in connected digital

services, such as Internet protocol TV, payment solutions, and advertising

platforms. We summarize the size of the market opportunity for technology

providers and communication service providers.

Key FindingsThe biggest opportunities for transmission-related systems by 2015 and beyond (at around $100

million or more for vendors serving communications service providers [CSPs]) are:

In the fixed consumer market, Internet protocol TV (IPTV) $543 million in software and

services followed by wireline advertising systems.

In the mobile market, application stores and mobile TV offer some opportunities (respectively,

$150 and $97 million in software and services). Other opportunities are below $50 million

(except machine-to-machine [M2M]).

In the enterprise market, there are opportunities in supporting CSPs entering the cloud and

providing IT services to enterprises (more than $2 billion in hardware, software, and services).

M2M systems offer medium opportunities ($115 million in software and services, excluding

telecom operation and management solutions [TOMS]).

All connected digital services (CDSs) drive the transformation of TOMS and offer significant

opportunities. We consider them here as network related.

The hardware market related to CDS, not including TOMS, is significant ($1.5 billion) and is

much larger if all TOMS investments are counted.

Recommendations The market is no longer one-client one-product. Both vendors and CSPs need to grow their

CDS offering within ecosystems. CSPs struggle and sometimes fail in this respect.


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Going forward, the most important challenge is to define a flexible and modular architecture for

CSPs that can support the broad range of interacting CDS services.

Technology providers wanting to support CSPs in the CDS arena must offer more than one

solution or one type of content.

Table of Contents

Analysis..................................................................................................................................................3

CDS Technology Market...................................................................................................................3

Technology Market Trends...............................................................................................................5

CDS Technology and Service Revenue.............................................................................................6

Technology Trends.........................................................................................................................12

Next-Generation Service Delivery Platforms Become Central to CDS........................................12

IPTVSystems and Mobile TV Need to Evolve Toward Internet Media Platforms........................12

Mobile Payment Technology: The Battle Between NFC and Mobile Payments..........................13

Advertising and LBS: CSPs Need a New Vision........................................................................14

RCS: Technology Around Network Equipment......................................................................... 15

M2M: ACottage Industry With Many Verticals and Players....................................................... 15

Application Stores: Bookshop e-Commerce Technology, APIs and Gigantic Ecosystems.........16

Servers and Cloud Market........................................................................................................ 17

Some Broad CDS or VAS Vendors........................................................................................... 17

Background and Context..................................................................................................................... 18

Scope of Connected Digital Services..............................................................................................18

The Impact...........................................................................................................................................18

Conclusion........................................................................................................................................... 18

Methodology.................................................................................................................................. 19

Recommended Reading.......................................................................................................................23

List of Tables

Table 1. Overview of CDS or VAS...........................................................................................................4

Table 2. CDS Technology and Service Global Market Size, 2011 and 2015 (Millions of Dollars).............. 8

Table 3. Managed Services Opportunities Supporting CSP CDS, 2011 and 2015 (Millions of Dollars)...11

Table 4. VAS Technology Market and Services Market, Worldwide, 2011 and 2015 (Millions of Dollars)

............................................................................................................................................................ 19

Table 5. Assumption: Technology Revenue as a Percentage of VAS Revenue......................................21

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Table 6. IT Metrics Taken as Assumptions............................................................................................22

AnalysisCDS Technology Market

CDS are services provided over networks (not like a DVD). CDS are digital and "beyond the signal."

A CDS is based on digital information and transmission. It can provide information (text, pictures,

videos, music, sounds, files, software or any digital goods), process a transaction (including

payments), offer some form of rich communications (beyond voice and bits). More broadly, as the

services economy is moving to the digital world, CDS can include e-health services, online

education, and more.

In Table 1, we list a wide range of CDS, seen from the perspective of CSPs and their vendors.

Gartner, Inc. | G00239709 Page 3 of 25


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Table 1. Overview of CDS or VAS

Domain Discussed in Section Others Included in Market

Size in This Report

Other CDS Not Covered in

This Report

Supporting Technologies

Content distribution IPTVMobile TVMusic

Ring tonesOnline gamingMobile games

Internet TVInformation services, Web por-tals

VODCDNDPI

Advertising Mobile advertising Internet advertisingIPTV advertising

Public displays -

Commerce Mobile application store - e-Commerce sites Web hosting

Finance Mobile payment - Online and mobile banking -

Utility services Consumer location-based serv-ices

- Mapping and directions -

Enterprise Cloud computingIT, management (and privatecloud)

Other professional and sup-port services

- -

M2M (Internet of Things) M2M - - -

Personal services - - RCS, personal cloud, socialnetworking

MMS

CDN = content delivery network; CDS = connected digital services; DPI = deep packet inspection; IPTV = Internet protocol TV; M2M = machine-to-machine; MMS = Multimedia Mes-saging Service; RCS = rich communication suite; VAS = value-added services; VOD = video on demand.The CDSs we cover in this report are listed in columns 2 and 3. In column 2, we list the services for which there i s an overview in this research. The services in column 3 are included inthe technology market sizing but are not discussed further. For completeness, we also list relevant technologies that we do not cover here. Readers may also consult the Gartner HypeCycle reports, which feature over 1,500 technology areas.

Source Gartner (October 2012)



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For each of those services there are common functions that call for more integrated platforms over

time. Such common functions include: customer data and customer usage data (CRM), business

intelligence (BI), analytics, customer experience management (CEM), product catalogs, pricing data,

offerings, billing and charging, payments, fraud management, ordering, fulfillment, access control

and security, service management and more. A full list can be found in the service delivery platform

(SDP) research, see "Hype Cycle for Communications Service Provider Infrastructure, 2011."

Technology Market Trends

Vendors have been focusing on some of the largest network-related opportunities, ranging from

SMS to IPTV. To a large extent, those activities are within the network department and counted by

vendors as equipment or services related to the network. Some niche vendors have appeared and

cover ring tones, payments, advertising, mobile TV, music, and so on. No vendor currently delivers

a wide portfolio of valued-added services (VAS) technologies to a single CSP. Some integrators like

Tech Mahindra operate a number of managed service contracts covering several consumer VAS,

except video and TV.

A number of CSPs (NTT Docomo, Orange, and Vodafone) have tried to launch broad CDSs and all-

encompassing SDPs, with mixed results or even failure due to the fast development of Internet

companies, consumer choices and the applications stores. A number of CSPs have attempted to

launch joint platforms and founded the Wholesale Application Community (WAC) in 2010, which did

not succeed apart from creating a number of APIs, mainly in the intercarrier billing domain. More

recently, several CSPs have launched another project, the Rich Communication Suite (RCS), which

aims to compete with Apple's personal cloud and other over-the-top (OTT) social network and

messaging services. These RCS services will initially include "enhanced" IM with service assurance

as SMS, video calling, and sharing of documents and photos simultaneously during calls.

Apart from messaging and IPTV, the VAS market within CSPs has remained small until recently. Incontrast, over-the-top (OTT) providers, in particular Google, Apple, Amazon, Skype, and Facebook,

have boomed in the number of subscribers and got significant advertising revenue. However, today

CDS are much more important for CSPs wanting to grow and compete with OTT providers. We

forecast a significant growth in many of the CDS within CSPs.

Large independent software vendors (ISVs) and Internet companies develop their own in-house

systems. Internet companies are trying to bypass CSPs, or to partner with them, but often not

allowing them to acquire and manage the technology. Many startups have been created around

CDS, and many have been acquired.

The CDS technology market for CSPs shows various levels of maturity. It is also complex, bringingtogether many functions from analytics to billing, payments, and media storage. Cooperative

projects among CSPs seem to have a high failure rate, as they can lack an entrepreneurial and

venture capital vision, or they can face management or ownership issues due to the high number of

partners.

Vendors have an increasing role to play but must evolve from silo solutions to more integrated

solutions; for instance, coupling e-commerce and application stores with payments and analytics.



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The complexity and multi-vendor environment also calls for a bigger role for system integrators

(SIs). Some Indian companies, such as Tech Mahindra, have understood this opportunity although

they tend to limit themselves to the consumer CDS so far, excluding video and TV. With cautious

CSPs unwilling to invest, several vendors offer hosted or cloud-based solutions.

The opportunities for vendors are:

Significant hardware market in the data centers (and also in the network, for caching, routing,

signaling, and policy-based management)

Biggest solutions market (software and services) are in IPTV (IPTV and mobile TV), e-commerce

(including also applications and content), advertising, and obviously in the related management

systems

Vendors need to enrich the operations support system (OSS), business support system (BSS)

SDP stacks to support a rich set of end-user applications and content, in a heterogeneous

cloud environment. This requires a service-oriented architecture (SOA).

Payment solutions are a necessary component of digital services, and many solutions exist that

make partnering more appropriate than new development. M2M is scattered into many

solutions, except if some basic subscriber identity module (SIM) management is required, which

is a smaller opportunity.

The ultimate goal is to build and offer integrated, enriched solutions, spanning multiple CDS,

running on cloud environments and available on the international market in multiple languages.

Some large CSPs in Asia appear to be developing such solutions, mainly in-house (Korea and

Japan). Other CSPs do not want to commit to a grand plan. Therefore, vendors need to offer an

integrated system in a modular way. This will allow the system to grow in size and functionality

as the market evolves. This sounds like an ideal case for cloud computing. The main obstaclesare not the size of the investment (many CSPs spend a lot on R&D), but rather the effectiveness

of the model and options.

As CSPs will only own a fraction of each CDS market segment, vendors should also consider selling

their solutions to OTT players and enterprises. Many SIs have already followed this path (selling

content solutions to media companies), but the opportunity should grow as more applications and

services become available on mobile and fixed devices.

CDS Technology and Service Revenue

To estimate the market potential of CDS technologies, we use a top-down approach, based on VAS

revenue. Video and cloud services are driving a significant investment in network equipment, andthis is already included in our network infrastructure market forecasts.

Here, we consider the IT aspect, not the network one. Some of this revenue is also part of BSS,

OSS, and next-generation (NG) SDP revenue. Content delivery network (CDN) is considered as a

network technology and is not included.

For each service, we computed the services revenue and the IT ratios for a related industry. We

present the revenue for both the technology market and the CDS market for 2011 and 2012; relating



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to consumer services and enterprise services (see Table 2). The technology market is estimated

using the formula:

External IT spending = CSP service revenue x IT spending ratio x outsourcing ratio.

The hardware-related opportunity is about half of the software and services opportunity, but thenumber of vendors is much more limited.

The total software and services opportunity for the CDS (see Table 2) is moderate compared to

the total next-generation service delivery platform (NG SDP) market segment, which should

reach $11,093 million by 2015. This relatively small level for external spending is partly due to

the large size of the internal spending by some CSPs.

In mobile CDS, the opportunity is at $590 million by 2015.

In the consumer CDS, IT systems with IPTV are the biggest market opportunity.

Supporting enterprise CDS from CSPs is the biggest technology opportunity overall.

Table 2 shows the technology and the service market sizing for the services.



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Table 2. CDS Technology and Service Global Market Size, 2011 and 2015 (Millions of Dollars)

CDS Technology Market 2011 and 2015 CDS Service Market

2011 and 2015

Systems forCSPs

2011Hardware

2011SoftwareandServices

2015Hardware

2015SoftwareandServices

2011Services

2015Services

Fixed Consumer

Services:

IPTV and VODsystems(excluding STBand network

equipment)

187 229 443 543 11,987 28,393

Advertising 26 72 42 117 4,015 6,481

Gaming 1 3 4 12 178 641

Subtotal 214 305 489 671 16,180 35,515

Mobile

Consumer

Services:

Applicationstores 70 150 5,887

Mobile TV 12 30 40 97 1,555 5,057

Mobileadvertisingsystems

1 3 16 45 191 2,473

Mobile and fixedmusic systems

9 21 15 36 1,101 1,890

Mobile games 4 10 12 33 578 1,835

CSP mobilepaymenttechnologies

2 5 14 37 205 1,459

Consumerlocation-basedservices

5 13 15 42 723 2,325



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Other consumerservices

25 50 75 150 - -

Subtotal 58 133 256 590 4,352 20,926

Enterprise-

Related

Services:

Public cloud 9 13 247 346 497 13,552

IT managementand private cloud

219 307 461 646 12,016 25,283

Processmanagement

54 57 39 93 2,973 4,850

M2M systems(excluding M2MSDP)

4 6 82 115 217 4,485

Others (notincluded)

14,855 21,764

Subtotal 287 382 829 1,200 30,559 69,934

Total CSPrevenueopportunity

51,091 78,204

Total CSPexternaltechnologyspending

558 820 1,574 2,461 - -

CSP = communications service provider; IPTV = Internet protocol TV; M2M = machine-to-machine; SDP = service delivery platform;STB = set-top box; VOD = video on demandNote: Revenue excludes currency variation and includes inflationNote: Hardware, software, and services are those purchased by CSPs directly.

Source: Gartner (October 2012)

We also calculated the opportunity for managed services (see Table 3). If we assume the managed

service fees include the hardware, software, and management of operations, the market for all CDS

is shown in Table 3. The market assessment in the table below does not include spending on

transmission systems and related OSS, BSS, and SDP (TOMS), although we cannot exclude some

possible overlaps.



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By 2015, the connectivity revenue from M2M should be below $15 billion, or less than 1% of

the global revenue of telecom carriers.

By 2015, the external spending on TOMS for M2M should not much more than $595 million, or

1% of the global TOMS market which is at $59.47 billion (external spending). The M2M SDP

part can be estimated $90 million by 2015.

All together, including systems linked to transmission revenue and systems linked to the

managing and processing of the M2M systems by CSPs, the M2M opportunity for vendors is

around $792 million by 2015 (procurement from CSPs).



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Table 3. Managed Services Opportunities Supporting CSP CDS, 2011 and 2015 (Millions of Dollars)

Systems for CSPs 2011 Managed Services 2015 Managed Services

Fixed consumer services

IPTV and VOD systems (excluding STB andnetwork equipment)

82 193

Advertising 17 28

Gaming 1 3

Subtotal 100 224

Mobile Services - -

Application stores - 31

Mobile TV 8 27

Mobile advertising systems 1 11

Mobile and fixed music systems 6 10

Mobile games 2 8

CSP mobile payment technologies 1 9

Consumer location-based services 3 10

Other consumer services 15 45

Subtotal 37 150

Enterprise-related services - -

Public cloud 4 119

IT management and private cloud 105 221

Process management 22 26

M2M systems 2 39

Others (not included) - -

Subtotal 134 406



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Total CSP external technology spending 270 780

CDS = connected digital service; CSP = communications service provider; IPTV = Internet protocol TV; M2M = machine-to-machine;STB = set-top box; VOD = video on demand


For details of our calculations refer to the Methodology section.

Technology Trends

Next-Generation Service Delivery Platforms Become Central to CDS

The concept of SDP is broad and evolving. In essence, it is a range of platforms that allow the

delivery of a service in a CSP. Originally, the SDPs were inside the network. However, with the

development of new digital services, some of them on top of the network, new SDPs are muchcloser to IT and Internet architectures. The use of SDPs to create CDS-like Internet companies has

mostly failed. Today however, with IMS and RCS, the NG SDP is trying again to support a variety of

network-centric services, such as IM, presence and personal storage in the cloud. The chances of

success are mixed (see "Emerging Technology Analysis: What Exactly Do Rich Communications

Offer Communications Service Providers?"). NG SDPs are deployed as enhancements of existing

silo delivery environments.

The SDP technology must evolve toward an architectural concept, based on SOA and offering a

wide and reliable capability to CSPs. Such capabilities rest in part on the quality and

standardization of interfaces between all sorts of systems and functions. APIs play a major role in

SDPs.

As network vendors and CSPs tend to expand the SDP concept within the network, there is a risk

that IT and Internet requirements and opportunities might not be taken into consideration. This can

limit the capability of a CSP to develop Internet-based CDS that run without interacting with the

network (beyond using the IP layer). The convergence of the network view and the Internet view in

NG SDPs, although necessary, is quite a challenge for both vendors and CSPs.

The vendors in SDP are often network equipment providers and IT services providers, such as

Amdocs or IBM. The opportunity for vendors is to first develop an interoperable architecture based

on SOA, cloud computing, and parallel computing where appropriate. The market should not be

limited to CSPs, as a large fraction of the services will be offered by non-CSP Internet companies.

IPTV Systems and Mobile TV Need to Evolve Toward Internet Media Platforms

Most of the IPTV technology market is in set-top-boxes (STBs) and the network equipment, which

we do not cover here. The IT equipment and software within CSPs relates to the TOMS functions on

one hand, and to specific media and customer device management solutions on the other hand.

TOMS functions have been enriched by vendors to cope with IPTV and VOD. So far, IPTV has been

a streaming activity. However, over time IPTV needs to evolve toward a full Internet TV experience.



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This will see an increase in IT equipment to store, recommend, and bill the content, also linking it to

advertising. Media production IT equipment may also come into the picture. Content delivery also

calls for network technology enabling a better quality such as CDN technology, which involves a lot

of caching, transrating, and transcoding.

Alcatel-Lucent and HP are examples of vendors having content management and delivery systems.Cool vendors in CDN include Globys, SevOne, Skytide and Vasona Networks.

Mobile Payment Technology: The Battle Between NFC and Mobile Payments

The worldwide revenue opportunity for CSPs in mobile payment and remittance services is

estimated at $1.6 billion in 2012 and $4.9 billion by 2015, of which only a fraction (estimated at $1.5

billion by 2015) will be captured by CSPs. For more information, see "Market Trends: New Revenue

Opportunities and Profitability for Telecom Carriers (Developed and Developing Markets), 2015" and

"Forecast: Mobile Payment, Worldwide, 2009-2016."

There are already a number of solutions and providers. Overall, payment solutions range frombanking systems to Internet solutions (originally conceived for the fixed Internet), mobile payments

and contactless or Near Field Communications (NFC) solutions. Most solutions are developed or

used outside the remit of CSPs or mobile network operators (MNOs) today. In addition, there is a

slow trend to develop digital wallets that can cope with multiple digital cards, payment, or loyalty

systems. However, the situation varies from country to country with emerging countries seeing

MNOs playing a much more important role. In most cases, MNOs need to work together with banks

unless they have a bank themselves. This is for regulatory reasons, and the link with real cash.

The software evolution is toward flexible systems (SOA-based) and more integration (linking various

systems from payments to loyalty to commerce among others). There will also an evolution toward

greater scale, with well over 50 million transactions a day.

Few vendors target CSPs, Sybase being one of them.

The vendor opportunities will be in more advanced and flexible systems for CSPs, linking payments

and billing and interconnecting with broad ecosystems, media, e-commerce, loyalty systems, and

social network applications or universal communications. Outsourcing should be high, given the

fact CSPs now need quickly to find new revenue sources and are more inclined to call on vendors

than developing solutions entirely by themselves.

CSPs will probably fall into the following categories:

Those not entering the payment area (most smaller CSPs).

Those having a partnership which leaves most of the responsibilities and revenue to partners.

Those wanting stronger control of the technology but willing to outsource it.

A few larger ones, probably in Asia or in Europe, wanting to build a solid integrated system of

digital services of which payments and remittance will be part.



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Some CSPs may commercially operate with a banking license. Several CSPs are working together

to set up common standards and solutions for payment in France and in the U.K.

Significant challenges continue to limit mobile payments in general and CSP offerings in particular.

CSPs are not seen by consumers as the most trustworthy financial provider in mature countries, in

contrast to emerging countries. Many, if not most, CSPs may perceive mobile payments as too riskywith not enough profit. Solutions that bypass MNOs altogether may be winning consumer loyalty.

In the payment area, we find Comviva, Gemalto Ericsson, and Oberthur Technologies whose core

businesses are in chip cards and want to expand in payment solutions. Monitise, in partnership with

Visa (the company's majority shareholder) relies on joint ventures and connects mobile carriers,

banks, and merchants to its hosting platform. Sybase's mobile commerce solution provides mobile

banking, payment, and remittance functionality.

Advertising and LBS: CSPs Need a New Vision

Advertising on fixed and mobile networks appears to be dominated by Internet companies. CSPsdo not see how they can catch up effectively. We have shown that the only way telecom carriers

can compete is by offering a wide and integrated range of CDS that complement each other around

the chain: media, universal communications, adverting, payments, commerce and smart city

services (see "Comprehensive Value-Added Services Offer a Long-Term Competitive Edge to

Telecom Carriers").

After the 2009 retraction of the advertising market, 2010, 2011, and 2012 appear to be years of

transition and slow growth. Neither the development nor the penetration of advertising by CSPs will

be very fast. Moreover, social networks and related advertising are leading the hype in 2011 and

2012.

Many Internet companies develop their own advertising technology. However, there are also many

innovative companies developing advertising solutions. Several telecommunications-based

advertising solutions exist, with different maturity levels, some just Internet applications and not

specific to CSPs. These isolated advertising solutions span mobile advertising (SMS) and

advertising on the Internet. Some other applications are built around location services (for example,

finding a restaurant in the neighborhood). We also find analytics and algorithms alongside

advertising distribution technologies.

Such silo technologies do not build on the broad swath of information CSPs have about customers

across services. Over time, however, CSPs that intend to "monetize" their unique competitive

position can implement converged platforms, spanning the different networks, devices, andservices they operate.

Vendors include Acision, Alcatel-Lucent, Amdocs, Atos, Capgemini, Citex Software, Comverse

Technology, Huawei, IBM, MADS, Medio Systems, Mobixell, Openet, Oracle, RGB, SLA Mobile,

Wmode, and Zad Mobile.



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RCS: Technology Around Network Equipment

RCS services bring together a number of different functionalities into a single place on the

consumer's device. RCS features will be delivered in the following three phases:

Release 1, defined for mobile devices focuses on voice, messaging, and enhanced phonebookcapabilities for mobile devices.

Release 2, was introduced in mid-2009 and focuses on RCS services becoming accessible via

broadband access. Release 2 extends the use of some rich communication services to other

devices with broadband access (that is, a PC connected via a wireless LAN access point),

excluding receiving SMS.

Release 3, initially defined in February 2010, focuses on consolidating the Release 2 features

and adds some enhancements, such as the IP multimedia subsystem (IMS) primary device

feature, which allows customers to use broadband access as the primary device in the absence

of mobile devices.

RCS services don't include presence in the first step, which is why this has been postponed in the

U.S. where presence is rightly seen as a must-have. RCS is linked to IMS and mobile voice-over IP.

It is promoted by CSPs and network equipment vendors.

It is hard to forecast the likely success of RCS as there are unknown factors concerning user

uptake, and there have been many failures before in cooperative CSP initiatives targeting Internet-

like features.

The vendor revenue related to RCS is scattered between infrastructure revenue, IMS, and NG

SDPs. For more information, see "Emerging Technology Analysis: What Exactly Do Rich

Communications Offer Communications Service Providers?"

M2M: A Cottage Industry With Many Verticals and Players

The M2M technology and market is very diversified. The main technology domains are the

management of connection or SIM management, the machine or device side, and the central

processing of the data. Both for the machine side and the central processing, many vendors

operate or plan to launch solutions per vertical industry and, quite often for a narrow function such

as car tracking, smart metering, vending machines, or public displays. Many M2M initiatives will fall

under large smart-city projects, with often heavy government involvement (such as smart grid for

energy conservation and smart transportation to reduce traffic congestion).

Telecom carriers tend to focus on managing the communications contracts or the SIM cards.However some carriers are growing their offerings in managing the M2M applications and have

acquired companies (Verizon Communications recently acquired Hughes Telematics for $612

million) or developed solutions themselves (like T-Systems) or both. Amrica Mvil, AT&T, China

Mobile, KPN, NTT Docomo, Orange Business Services, Rogers, Singtel, Sprint, Telefonica, Telenor,

Telstra, T-Mobile, Verizon Wireless, Vimpelcom, Vodafone, and other CSPs are growing their M2M

offerings.



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In the service delivery and connection management or SIM management, M2M SDPs enable

carriers' charging and provisioning of SIM cards. Nearly all vendors in the billing and OSS and SDP

try to offer M2M capabilities. Some vendors are specializing Jasper Wireless is becoming a

leader in M2M SDPs. Providers of SIM cards like Gemalto are also keen to offer a service platform.

In our strict definition of CDS, the SDP part is not included in the technology market sizing of this

report, as it relates to the provisioning, billing, and management of the connectivity and APIs.

The technology on the machine side and the central management is often called operations

technology and is driven by large industrial supply companies. This technology has evolved toward

IT OSs such as Windows or Linux and TCP/IP communications, making the market more open than

it was previously. Typical vendors are: ABB Group (Ventyx), Alstom Grid, Capgemini, GE,

Honeywell, Integron, Invensys, Johnson Controls, Schneider Electric, Siemens, and Walsh Vision.

Some vendors specialize in the device modules. Landis & Gyr, Sensus, or Itron specialize in meters

but have ambitions to play a role in central management as well. Some vendors specialize on the

communication module itself, but Ericsson pulled out of that market.

End-to-end real-time security is also becoming an important area for vendors in the M2M market.

There are multiple partnerships and alliances around M2M. KPN, NTT Docomo, Rogers, Singtel,

Telefonica, Telstra, and VimpelCom have launched a global M2M alliance, supported by Jasper

Wireless, aiming at a global SIM, single Web interface and a central management system. The

FreeMove alliance of CSPs offers coordinated SIM cards.

Standardization is important for M2M and partly different from communications so far. Indeed there

is even more focus on battery savings for devices such as meters. Message Queue Telemetry

Transport (MQTT) has already been proposed as a potential standard for M2M communications

(running over TCP/IP). The specification for third generation mobile systems from the ThirdGeneration Partnership Project (3GPP) is actively standardizing the reliability of network connectivity

with its current release 10 (the main focus is overload and congestion control), and the upcoming

release 11.

Application Stores: Bookshop e-Commerce Technology, APIs and Gigantic Ecosystems

Application stores are part of broad ecosystems involving device manufacturers, developers,

telecom carriers, Internet companies, dedicated mobile application companies, and now

increasingly, enterprises targeting their clients or employees. The most popular application stores

are developed by device manufacturers or software vendors and Internet companies, in particular,

Amazon, Apple, Google, Microsoft, Nokia, Research In Motion, and Samsung. There are also about50 vendors providing application catalogs, and consolidation is on the horizon for these types of

providers. Currently, Facebook is challenging CSPs on many fronts with its ecosystem of

developers, new application store, virtual money (credits), link to Skype, and its commitment to

HTML5.

Carriers develop their own application stores that are frequently multidevice. Examples include

AT&T, China Mobile (new store planned to open in September 2012), O2, Optus, Orange, SKT,

Sprint, Telefonica Movistar, Verizon, and Vodafone. Carriers currently owning applications stores



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have developed them with mobile application providers such as Appia (now Vodafone India).

Vodafone tried to develop a broad range of services around the Vodafone 360, but was not

successful.

A provider such as Appia offers an e-commerce platform for applications and managed services,

with ratings, on-device software and customer care, a broad catalog of applications and a largenumber of developers. This exemplifies the trend in CDS markets to offer more than the software or

hardware and to add an ecosystem of content, partners or customers.

Vendors targeting the CSPs' market for application stores need to offer more than tools; supporting

a holistic entry of CSPs into the (mobile) application market and allowing them to become OTT

players. For an overview of the strategic issues for CSPs in the mobile application domain, see

"Market Trends: How CSPs Can Seize Opportunities in the Mobile App Economy."

Servers and Cloud Market

Gartner publishes a very broad range of reports on cloud computing technology. See, for example,"Marketing Essentials: Four Strategic Options for CSPs to Explore Cloud Computing Opportunities"

and "Market Trends: Public and Private Cloud Infrastructure Converge into On-Demand

Infrastructure Fabrics." From a CSP point of view, the required technology is evolving toward unified

on-demand infrastructure fabrics, spanning both public and private clouds, perhaps also brokerage.

One of the key issues for CSPs is to create a large scale at a relatively low cost. Vendors that can

support CSPs include VMware and the major management software vendors BMC, CA, HP, IBM,

and Quest (Dell). Network equipment vendors Alcatel-Lucent, Cisco, Ericsson, Huawei, NEC, Nokia

Siemens Networks, and TOMS vendors are also trying to develop and provide solutions in that

space. Some CSPs develop the technology themselves or acquire cloud providers such as Verizon

that acquired Terremark.

Some Broad CDS or VAS Vendors

The large network equipment providers (NEPs) all have some sort of VAS or CDS offerings. These

vendors include Alcatel-Lucent, Huawei, Ericsson, Nokia Siemens Networks, and ZTE. Their

offerings tend to be closely related to the network such as IPTV, VOD and media management,

MMS, interactive voice response, voice SMS, payments or wallet services, LBS, gaming-related

services, advertising, and a variety of cloud offerings, not least cloud-based VAS and network

services platforms. These vendors also offer platforms and software development kits (SDKs) to

enable third parties to develop applications and interconnect with some network APIs.

The software vendors and SIs also add VAS or CDS to their offerings, such as Accenture, Amdocs,IBM, and most of the SDP vendors. There are some new companies having grown in the mobile

applications space like Appia, Comviva and OnMobile. Their sole focus is on one type of

application, such as advertising (Flytxt) or consumer cloud storage of personal content and content

delivery services (TriPlay).

In the IPTV market, vendors active in STBs are Pace, Samsung, Cisco, Motorola, Samsung, and

Technicolor.



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Background and Context

Scope of Connected Digital Services

Today, the scope of CDS or VAS for telecommunications is expanding. We have used the term VASin previous reports to cover all services above network transmission. In U.S. regulations, all services

beyond the network services are "enhanced services," a concept equivalent to VAS. However in the

U.S., Japan, and Europe, the concept of VAS has limited appeal, in contrast to some emerging

countries such as India or Indonesia. The terminology "enhanced services" is also not showing

marketing traction. So we are evolving to a new concept.

The ImpactCDS form a very broad territory in which the CSPs can only play if they build on their strengths; that

is, supporting and integrating many different services and creating or playing into ecosystems. Sofar this has not happened, although a few CSPs are showing the way forward (NT Docomo, and

SingTel, for instance). The traditional vendors supporting CSPs in particular, their networks

continue to view CDS as add-ons to the network, but this approach has generally failed. New

vendors have appeared, which serve all types of providers and often present much more

sophisticated business models with partners, users, advertisers, developers.

ConclusionThe CDS market shows a broad variety, and is seen by some as a cottage industry. We believe that

consolidation is necessary. We also believe that vendors need to play a more proactive role in CDSor VAS if they want to thrive. Vendors may have to develop CDS themselves (not only platforms) to

grow their revenue, if too many CSPs keep a low profile on CDS.



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Methodology

Table 4. VAS Technology Market and Services Market, Worldwide, 2011 and 2015 (Millions of Dollars)

VAS Technology Market, 2011 and 2015 VAS Service Market,

2011 and 2015

Systems forCSPs

2011Hardware

2011Software

andServices

2015Hardware

2015Software

andServices

2011Services

2015Services

IPTV and VODsystems (STBand networkequipment)

187 229 443 543 11,987 28,393

Advertising 26 72 42 117 4,015 6,481

Gaming 1 3 4 12 178 641

Fixed consumerservices

214 305 489 671 16,180 35,515

Application stores - - 70 150 - 5,887

Mobile TV 12 30 40 97 1,555 5,057

Mobile

advertisingsystems

1 3 16 45 191 2,473

Mobile and fixedmusic systems

9 21 15 36 1,101 1,890

Mobile games 4 10 12 33 578 1,835

CSP mobilepaymenttechnologies

2 5 14 37 205 1,459

Consumerlocation-basedservices

5 13 15 42 723 2,325

Other consumerservices

25 50 75 150 - -

Mobile services 58 133 256 590 4,352 20,926



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Public cloud 9 13 247 346 497 13,552

IT managementand private cloud

219 307 461 646 12,016 25,283

Processmanagement

54 57 39 93 2,973 4,850

M2M systems 4 6 82 115 217 4,485

Others (notincluded)

- - - - 14,855 21,764

Enterprise -related services

287 382 829 1,200 30,559 69,934

Total CSPrevenueopportunity

- - - - 51,091 78,204

Total CSPexternaltechnologyspending

558 820 1574 2461 - -

CSP = communications service provider; IPTV = Internet protocol TV; M2M = machine-to-machine; STB = set-top box; VAS = value-added services; VOD = video on demand




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Table 5. Assumption: Technology Revenue as a Percentage of VAS Revenue

Systems for CSPs 2011 Hardware 2011 Software

and Services

2015 Hardware 2015 Software

and Services

Fixed consumer services - - - -

IPTV and VOD systems(STB and networkequipment)

1.56% 1.91% 1.56% 1.91%

Advertising 0.64% 1.80% 0.64% 1.80%

Gaming 0.64% 1.80% 0.64% 1.80%

Mobile services - - - -

Application stores 1.19% 2.56% 1.19% 2.56%

Mobile TV 0.80% 1.91% 0.80% 1.91%

Mobile advertising systems 0.64% 1.80% 0.64% 1.80%

Mobile and fixed musicsystems

0.80% 1.91% 0.80% 1.91%

Mobile games 0.64% 1.80% 0.64% 1.80%

CSP mobile payment

technologies

0.94% 2.57% 0.94% 2.57%

Consumer location-basedservices

0.64% 1.80% 0.64% 1.80%

Enterprise-related services - - - -

Public cloud 1.83% 2.56% 1.83% 2.56%

IT management andprivate cloud

1.83% 2.56% 1.83% 2.56%

Process management 1.83% 1.91% 0.80% 1.91%

M2M systems 1.83% 2.56% 1.83% 2.56%

CSP = communication service provider; IPTV = Internet protocol TV; M2M = machine-to-machine; STB = set-top box; VAS = value-added services; VOD = video on demand




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Table 6. IT Metrics Taken as Assumptions

Industry Metrics Values Taken as Assumptions

Systems for CSPs Industry IT Spending in % of Reve-nue

IT Capex in % of IT Spend-ing

% of Outsourcing and Soft-ware

IPTV and VOD Systems (STB and networkequipment)

Telecom 3.90% 40% 49%

Advertising and gaming Media 4.10% 28% 44%

Application stores Software and Internet 7.30% 25% 35%

Mobile TV, mobile games, consumer loca-tion-based services

Telecom 3.90% 40% 49%

Mobile advertising systems Media 4.10% 28% 44%

Mobile and fixed music systems Telecom 3.90% 40% 49%

CSP mobile payment technologies Banking and Finance 5.70% 30% 45%

Public and private cloud, IT management,process management, M2M

Software and Internet 7.30% 25% 35%

Capex= capital expenditure; CSP = communications service provider; IPTV = Internet protocol TV; M2M = machine-to-machine; STB = set-top box; VOD = video on demand




23/25

Recommended ReadingSome documents may not be available as part of your current Gartner subscription.

"Market Trends: New Revenue Opportunities and Profitability for Telecom Carriers (Developed and

Developing Markets), 2015"

"Market Trends: New Revenue Opportunities for Telecom Carriers in 2015"

"Forecast: Telecom Operations Management Systems (BSS, OSS and SDP), 2009-2016, 2Q12

Update"

"Forecast: Mobile Payment, Worldwide, 2009-2016"

"Forecast: Mobile Application Stores, Worldwide, 2008-2015"

"Market Trends: How CSPs Can Seize Opportunities in the Mobile App Economy"

"Marketing Essentials: Four Strategic Options for CSPs to Explore Cloud Computing Opportunities"

"Market Trends: Top Five Trends in Next-Generation Service Delivery Platforms Reflect Strategy

Shift, Worldwide, 2012"

"Amazon, Apple, Facebook, Google, Microsoft and Sony Lead the Fight for Media Supremacy in the

Clouds"

"Market Trends: Worldwide, Set-Top Boxes Evolving in Divergent Markets, 2011"

"Leading IPTV Carriers and Their Technology Vendors, Worldwide, 1Q12 Update"

"Market Trends: Mobile Payment, Worldwide, 2012"

Acronym Key and Glossary Terms

CDS Connected digital service, or VAS in the broadest sense

CSP Communications service providers, a broad term that includes telecommunications carriers owningtheir network and other providers of communication services

VAS Value-added services which are services offered above the network or in addition to voice and dataservices. SMS is not considered as VAS in our terminology.

OTT Over-the-top, refers to services offered above the network and to providers of those services

Evidence

Source of industry spending metrics:



24/25

Software and Internet

"IT Key Metrics Data 2012: Key Industry Measures: Software Publishing and Internet Services

Analysis: Multiyear"

Telecom

"IT Key Metrics Data 2012: Key Industry Measures: Telecommunications Analysis: Multiyear"

Media

"IT Key Metrics Data 2012: Key Industry Measures: Media and Entertainment Analysis:

Multiyear"

Banking and Finance

"IT Key Metrics Data 2012: Key Industry Measures: Banking and Financial Services Analysis:

Multiyear"

Secondary research was also conducted by the authors. The CDS or VAS service revenue for CSPs

has been estimated in "Market Trends: New Revenue Opportunities and Profitability for Telecom

Carriers (Developed and Developing Markets), 2015" and "Market Trends: New RevenueOpportunities for Telecom Carriers in 2015." The IT spending ratios and the outsourcing ratios have

been taken from our TOMS forecasts for 3Q12.

This document is published in the following Market Insights:

Carrier Network Infrastructure WorldwideCarrier Operations & Strategies WorldwideConsumer Services WorldwideEnterprise Network Infrastructure WorldwideEnterprise Network Services WorldwideMobile Communications WorldwideMobile Devices Worldwide



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