Transcript

John 00:04

Well hello everyone, I'm really delighted to welcome you all to TNC's latest "Down the Wire" podcast. And today's topic is an absolute cracker: "Mobile Procurement - There's a Storm Coming". I'm John Waterhouse, CEO @ TNC, and I'll be your host for the next 20 minutes. As I'm sure everyone joining knows TNC is the UK's largest independent network and telecoms strategy and sourcing consultancy, supporting over 280 major UK multinational organisations, and helping them to get the best possible commercial, technical, operational and contractural results from all their network and telecoms solutions. Joining us today to share his expertise is our Head of Consulting and lead mobile expert, Adrian Joyce. Adrian, would you like to say hello to our viewers and listeners?

Adrian 00:53

Yes. Hello, John. Hello, everyone.

John 00:55

Great to have you, Adrian. So, as promised, today's topic is super interesting and I know it is not going to disappoint. We've got an absolute tonne to cover. We're going to touch on Brexit and its impact on EU roaming; we're going to talk about 5G use cases; we're going to talk about the post-COVID mobile environment, and lots in between. As Adrian put it so beautifully in the opening paragraph of his White Paper on exactly this topic, "Over the years, mobile procurement has assumed almost a utility feel, as prices were reduced, tech funds lessened, mobile devices retained for ever-longer periods and coverage issues declined with improved coverage and Wi-Fi calling, frankly not much changed from one procurement cycle to the next. However, there is a perfect storm forming that will change all the above, and may mean your next mobile procurement will be the hardest and most important in a decade." It's pretty stirring words. So look, Adrian, let's get straight into it. You say there's a storm coming. Your next mobile procurement might well be your hardest and most important of the decade. So simple question. Why?

Adrian 02:13

Yeah, I think it's really interesting, and there's probably a combination of factors at play here John. I think it all comes down to a few basic factors that are important to all procurements. That's risk, the impact cost, and the possibility of opportunities lost. So the topics we're going to talk about today - on their own, they don't warrant too much individual attention, but put them all together and yes, this is a really important period for mobile procurement. Because you get this wrong on one or two of these factors, and the risks, the opportunities lost, etc. just multiply. Over the procurements that we're running at the moment, we're seeing really contrasting deals dependent on some of those factors. So yeah, you can't just run a procurement like you did last time, and perhaps miss or ignore some of these factors: you do so at your peril.

John 03:16

So is it fair to say that this is one of those situations where, looking at it optimistically, there's a great deal to be done, but there's a lot of risks that if you don't take these factors seriously, if you don't address them effectively, you could end up with a pretty awful outcome.

Adrian 03:36

Oh, undoubtedly, I think mobile remains very competitive. We're running tenders at the moment where we're seeing substantial savings, so it's still possible but yes, there are these factors creeping in that you just need to be aware of, you need to try and mitigate, you need to understand and you need to see the differences between the tenders and responses to RFPs put on the table, and actually draw those factors out. And some of them would be easy to miss or to not understand the materiality of them, I think. So putting them all together definitely feels a lot lot different to procurements for certainly last three, four, or five years.

John 04:26

And the key difference being that the opportunity to for this to go drastically wrong has increased. So it's not just - yes, there's always been upside available in mobile prices are coming down and we'll talk about that, but now the downside risk has increased. If you don't put the right planning in place, if you don't have the right strategy, if you're not aware of these issues and so on, you really could end up with a with a pretty nasty end state.

Adrian 04:55

Yeah, it's interesting actually - perhaps just to go off at a slight tangent before we get into some of the the parameters that we want to talk about today - is the sort of average length of of the mobile deal. In the past, we generally predicated on two year deals tending to be the refresh cycle for mobile devices, but because mobile devices have become so expensive, you know your top end Samsungs and Apples, are several 100 pounds at least. And because those devices are not changing as much from one iteration to another, and are lasting longer, and people are taking better care of them, generally we're seeing that device estates aren't being refreshed as regularly. And that used to be the trigger to have a next procurement cycle, to get a new tech fund in potentially to help or to pay for, a device refresh and we've kind of diverged from that. And some of the other factors that we're going to talk about today, particularly the impact of Brexit, and the potential to introduce the EU roaming charges in the future -our advice to customers at the moment is actually to try and lock in pricing for a longer period; now we're not talking five year deals, mobile moves too fast, there's too much happening. 5G I was going to say, is on the horizon - it's here, but it's it's still very early in the day, but we are suggesting to customers, perhaps lock in for three years, just to give yourself that sort sort of security, particularly when you don't have the device refresh tension behind you. So yeah, it's important therefore, that the other factors aren't ignored.

John 06:43

Presumably, because particularly if you are locking in for longer, if you do end up with problems around how you're dealing with things like EU roaming or inflation - and we'll come back to some of these points in asecond - you've got to live with that problem for an awful lot longer?

Adrian 07:01

Absolutely.

John 07:02

Which then compounds the risk?

Adrian 07:04

Compounds is exactly the word Yep. Yep.

John 07:07

Okay. So let's drill down into a few of those topics in a bit more detail. You talked about EU roaming post Brexit. I know you're very keen to talk about inflation (and we definitely will), and post COVID changes... Can you talk us through what are some of these downsides, some of these risks that you're identifying?

Adrian 07:29

Yeah, let's start with EU roaming and Brexit. So under EU regulation, there was "Roam like At Home" legislation that meant that your use of your device in the EU and a couple of other associated countries, was the same as your domestic use. So if you got inclusive calls, if you had an average of two Gig of data, or a ten terabyte pool of data and you're in France, or Poland, or wherever, your usage was the same in terms of its cost profile as your usage in the UK - Fantastic! Fantastic for organisations that worked in Europe, but in particular, fantastic as consumers, or as enterprise users just purely on holiday: did you want to do a bit of work? Well, it's not going to cost anything. So in terms of roaming, that was great. Obviously, there's this thing called Brexit that happened and the result is that those regulations are no longer enforceable against the mobile network operators. And what we've seen over the last year and a half, or perhaps a year, in the consumer space, we predicted would happen in in the enterprise space and we're beginning to see that. So in the consumer space, all but O2 have altered, or have come back with pricing for EU roaming so typically, it's something like £2.00 a day to Rome in the EU so I mean, it's not too bad - only two pounds a day. However, multiply that up by hundreds or thousands of users over a summer holiday period, over two week - that's on the assumption we're allowed to travel once again - it begins to add up and and this may only be the start of a slippery slope. You know, when does it become £2.50? When does it become £5.00? We were concerned that this would bleed into the enterprise space - it's a bit bizarre mobility, it tends to be led by the consumer space and enterprise sort of catches up in some respects - and now unfortunately, my Mystic Meg crystal ball has proven to be correct. We're now seeing some enterprise deals coming through with charging for EU roaming. So we can look to mitigate that in negotiations; we can look to mitigate that in the questions that we ask in RFPs, but it's essential: 1.) that we do that. But 2.) that, when you're looking at these deals, that you take that into account, you see the contrast between the vendor/the operator not charging you and the one, that's only charging you a couple of pounds and again, understanding the impact of that - of course, with COVID, all your recent usage data for the last year and a half doesn't reflect what you might do over the next two, three years. Again, on the assumption that we go back to our summer beach holidays, that could have a big impact! So it's easy to go, "Well, we only had 500 days in Europe last year, and it's only £1,000 pounds, let's not worry about it". But if that becomes 5,000 days, or 10,000 days, obviously the maths generates more of a difference between one deal and the other. I think the other aspect of this, very briefly, is the ability in some contracts for the vendor to change the pricing mid-contract. So of course we're always very anti that for obvious reasons, we try and keep it fixed. But there are some contracts and some smaller contracts and particularly renewals where you might not have the capability to negotiate that away. And again, what that might mean is that you start with £2.00 a day, but actually it becomes £3.00 next year, £5.00 a year after. So again, something to really, really focus the mind on...

John 11:25

And presumably as you rightly say, partly because of COVID your current usage profile might not include so much roaming, so you might not see this, but also I guess as well, because your EU roaming isn't called out in your current bill., so even if you look back at a pre COVID bill, you wouldn't see that EU roaming in there and so you wouldn't necessarily therefore identify it as an additional cost. When you when you take your new tariff and model it against your pre-COVID usage profile, you wouldn't see that EU roaming, so it wouldn't get pulled out?

Adrian 11:58

Yeah, it's a strong possibility. For those of you foolish enough not to get our assistance with this sort of stuff, then yeah, that could happen.

John 12:06

Who would make such a mistake?

Adrian 12:07

I don't know, John, but certainly when we're pulling the usage together to put into a pricing template, we are focused on the difference between EU and the rest of the world data. But yes, you're right, and this can be compounded by the different ways that your incumbent operator presents their billing for for roaming. Some divide it into zones, and you might find that there are some countries that don't quite fit into the zones that a new vendor would would present you with. So trying to get that lower level, country level detail is very important, not just for EU roaming but, you know, for example, if you're going off to the Seychelles, Mauritius, Andorra, Saudi Arabia...

John 12:55

...sounds like your summer...

Adrian 12:56

...all these top, top hotspots that you can have a distinct difference from one vendor to another. So it is important to get that country level detail.

John 13:07

So I know the next... well, one of the other big risks you started to call out and I'm keen to get your views on... is the creeping return of inflation - automatic cost increases - sort of coming back into contracts?

Adrian 13:29

Yeah. So again, consumer space-led. So Ofcom altered their rules about two years ago, roughly, that allowed this to happen - I could talk at length about the reasons why etc. It's happened. So in the consumer space, it's very common - if you see any of the adverts on TV for any mobile deal - to hear CPI plus 3.9%. Again, we we feared that this would creep into the enterprise space once tested in the consumer world: get people used to it; get used to the adverts, well, we've managed to do it in the consumer space as an MMO or as a mobile vendor, should we try it in the enterprise space? and sure enough, they have and it's creeping in. Now, it's not untypical to hear 3.9% plus CPI. Is CPI going to hit 4% for the whole of this year? It's certainly up at the high threes at the moment. So it's quite possible that your deal today goes up by 8% next year. And then if you'd locked in for a third year as well, in that third year, (two years from now) it goes up another 8%, and that can be a significant difference again between two deals that: Day One: Deal A looks really good but you know in Year Three of that deal, actually you should have gone for Vendor B/Option B, because they didn't have an inflationary clause. So again, it's just common sense modelling. The further aspect, and again this sort of overlaps into another topic we'll talk about, is increased data usage. So data usage is only going upwards - there's some reasons and we'll go into that in a moment I'm sure John, but again, your spend today might be higher in Year Two, Year Three plus then inflation on top is a further compounding of that.

John 15:28

Yeah, so we're talking here pretty material. You know, because when you hear "...going up by inflation...", it's easy to think, there are 1% or 2%, do I care? But when you're talking about CPI plus 3.9%? You're absolutely right. You easily - and you know, you only have to read any, newspaper to see a lot of concern about inflation, interest rates potentially rising, blah, blah, blah, you probably would have to do your modelling at the moment - but that could mean an 8% year-on-year compounded growth.

Adrian 16:06

Absolutely, the first thing to do is try not to have it: "This is an enterprise deal - it's a big deal - I want fixed pricing. Don't be ridiculous with your inflation clauses Go away, please". However, that doesn't always work, you know, it depends on the vendor, the size of the deal, etc, what other negotiations are ongoing, what other aspects you're looking to achieve in a deal. But if you haven't negotiated that away? Absolutely. You have to factor in 8%, I think at the moment for those sort of deals, and that that will have a material impact.

John 16:43

And presumably, I mean, I know one of the things we're fond of saying in any procurement process is, there's no such thing as a free lunch, right? So you know, if you get the inflation clause taken out, as essentially you're saying to the service provider, are they just gonna take that out and not want to see, you know, some compensation elsewhere in the deal, etc? Is this a case that to some extent - and we will talk about whether prices are coming down or going up - but they've sort of started, they've put the start bar of the negotiations 8% higher than it used to be...?

Adrian 17:25

So I think we're in a magic moment, certainly for the next couple of months maybe, whereby inflation has - it's obviously significant, it's in the news, your gas bills are going up, your electric's going up, your food's gone up - have the mobile network operators had to put many of their costs up in terms of staffing in particular? Yes, running a mobile network, maybe the electricity to do so is costing them more, but I don't think they've yet had the full impact of inflation into their cost model. So I think you're at this moment where there will be people in their operation going... and quite rightly from their point of view, being prudent... "We need to have inflation protection in our contracts with our customers, because inflation is coming". But they're in a period where it hasn't really hit them hard yet, therefore you've probably got this magic period of a few months, where you hopefully can negotiate it away. My fear is that as inflation stays high through the winter, you'll get to the new year, and possibly then pay demands start hitting these vendors, and they have to actually start enforcing this, and they won't give it away in a negotiation. And then you're even more correct, that there'll be an impact on something else. So yeah, if you're still using a tech fund, your tech fund goes down, or they say "We'll do away with the inflation clause, but we'll have to start you at a higher rate anyway".

John 19:07

Yeah. Because that's interesting, I know we're going talk about 5G, we will get to it. But just very quickly, while we're on sort of "deal mechanics", if you like - tech funds still alive and well, prices still coming down - it feels that the narrative we've been saying about mobile deals is continuing, albeit perhaps that at a big picture, the price of a Gb of data, for example, that's still coming down, even if the deal mechanics get a little bit more complex around it? Is that sort of fair assessment?

Adrian 19:45

Yeah, absolutely. So the comparisons we do to previous procurements still show significant savings, but those savings are being eroded by two main things I guess 1.) is these sort of inflationary clauses whether it's EU roaming, whether it's an inflation clause itself, and 2.) is increased usage. So you know, we can try not to steal from our future selves, John, in this podcast but there are reasons why data usage is going up. Some of which is just inevitable increased use of mobile devices for data consumption: more video usage, more - just generally life - continues to be lived more on your mobile than anything else. So year-on-year, data usage is going up. So whilst the price per Gb is definitely coming down, and we know we're still seeing dramatic falls in that, people and enterprises are using more data so price comes down, the probable spend may be down year on year, but maybe by Year Three, it's back to where it was in Year Zero.

John 20:59

I was gonna say you can have that slight not quite a U-shape, but equally, it doesn't just drop and stay dropped. It kind of drops and creeps back. Yeah. Okay. That's really interesting. I'm conscious work we are getting towards our time, but I do want to touch on 5G quickly - 5G demand, but also just a kind of view on the reality of 5G right this minute: is 5G something people listening to this podcast who are facing into a mobile procurement, is 5G high on their agenda? Should it be high on their agenda? What's your take on it?

Adrian 21:39

There's been a lot of hype, a lot of marketing, a lot of advertising, a lot of talk about 5G, and we've discussed this hype for three or four years, I guess. There are still no killer apps out there that require 5G. I think the number one use of 5G, and I'm going to be bold here, is showing your colleague or friend or interested punter in the pub, your speed test result!

John 22:04

...and you're only saying that because you've had me showing you my speed test results on the regular...

Adrian 22:11

I was literally talking to a senior account director at one of the MMOs yesterday who told me that they'd just got a 5G phone, and all they've done so far is a speed test, and I was like "this is music to my ears". So look, 5G is the future, undoubtedly, this is a repetition of what we saw with 4G, the first few years: low coverage, low number of devices, low number of apps that utilise the benefits of that generation of mobile technology. But after a few years, you begin to get apps that are feature rich, that require the low latency, that require the greater speed. But today in short - and I know we've got other material on our website, if people want to look at it in more detail - today, there's no real business justification for having a 5G device, they cost more, coverage is very patchy, there's not much more that you can do with it other than speedily download data if you happen to be in coverage. For most people, the amount of data they're consuming, they can do perfectly well on 4G, or on Wi-Fi. There's no real benefit. The only real use case that I can see today, particularly for a handheld 5G device, is if you're about to step on a plane and want to download five hours of content quickly, because you forgot to do it last night when you were on your home Wi-Fi. How much of that is relevant to business? And how much is it? Actually the sort of personal use, I'll leave individual organisations to discuss usage policy. But beyond that, 5G definitely has its place, but I don't think it's in the handheld device. Obviously, we're seeing some trials of campus technology using 5G to flood ports and universities - things of that nature - hospitals, instead of Wi-Fi, or to complement Wi-Fi, and again we go into more detail on some of our other insight material. But I'll leave it there for now. I think John, that probably answers your question.

John 24:20

No, that's fantastic. Very, very interesting and very well summarised. So I'm very conscious we're running out of time for today's podcast. So we are going to have to draw to a close. Adrian, thank you so much for providing us with your insights. It's been really, really interesting. And I'm sure our viewers and listeners will have got a lot out of that and particularly understanding the risk profile of what they're about to face into. So that's fantastic. Thank you. Thank you everyone, for listening. Please do let us know any questions you may have about this or any other network and telecoms topic. You can get in touch with us through our website, network collective.co.uk, or any of the usual social channels. We look forward to talking with you again soon. Thank you.

TNC is the UK’s largest independent specialist network and telecoms consultancy

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