How big an opportunity is blockchain for telcos as they look to realign the way they do business?
The inter-operator business which we are in, is a complex one. For international roaming alone, Deutsche Telekom has technical and commercial relations with more than 600 other mobile operators. We have two traffic directions and three services: Voice, SMS and Data. Already this creates huge complexity, with call data records and payments being sent from one operator to the other. Here, data clearing houses act as settlement hubs and significantly reduce data and financial clearing complications. However, the settlement processes are still slow, require alignment between operators and involve a big amount of manual work. Now, with upcoming new services like NB-IoT, LTE-M, VoLTE or ViLTE, the complexity will increase. So, we need to find a way for inter-carrier-settlement to be more efficient. A decentralized blockchain-based settlement network can support this goal – and provide more independence from data clearing houses. At the same time, Blockchain will add real-time capabilities to the settlement and improve cash-flow as well as reduce the potential for fraud.
How big an opportunity is 5G with regard to blockchain solutions?
5G will have higher efficiency with respect to the spectrum used, higher speed and throughput, lower latency, etc. What we know today as fixed line and mobile networks mesh into one virtual network. Services will get specialized network slices that are optimized for the specific service. For example, a latency-critical remote surgery application will get the low latency network slice that is optimized for this use case. But a light sensor will probably operate using a standard network slice. So 5G enables many different services which must be interoperable with the services of other operators. And these services need to be planned, priced and settled. Blockchain will help manage the increasing complexity by automating settlement processes. At the same time, Blockchain can improve the customer experience, for example in the areas of Data-on-demand or Virtual PrivateNetworks and have a significant positive impact on the top line.
What are some of the key challenges and stumbling blocks that telcos might encounter when trying to implement blockchain into their business practices?
To me, there are three major challenges. First, technology. There are different Blockchain protocols which are not (yet) interoperable and there is no industry standard regarding protocols. Industry bodies like the GSMA, the i3forum or the GLF can help with this. Right now, there is also no Blockchain network that will be able to handle the vast number of future transactions. Second are the legal challenges relating primarily to using Smart Contracts. If a certain action is implemented automatically, how does liability work when there are flaws? Discussions today about digital signatures for contracts tell me there is still a way to go. Thirdly is the question of governance. Which entity will operate a telco blockchain network? Who decides which operators will be admitted or removed from a network? A blueprint could be the SWIFT banking cooperative. There is a governance structure that levels the playing field for members while ensuring interoperability goals.
Are governments doing enough to create a conducive environment for investment into blockchain initiatives?
From my observation, this is very different country by country. To start with the EU however, I welcome initiatives like the EU Blockchain Observatory and Forum. The goal of this initiative is to accelerate Blockchain innovation and develop a Blockchain ecosystem within the EU. But their role is more limited to monitoring Blockchain activities and making recommendations. As opposed to this more passive approach, Switzerland, for example, has a very active approach when it comes to creating a Blockchain friendly legal environment. Switzerland sees the need to increase the level of legal certainty over the transfer of rights using digital registers. There are also plans to formalize anti-money-laundering practices for decentralized trading platforms as well as to adapt insolvency and banking laws for bankruptcy that involve crypto assets. These initiatives can prove to be an important competitive advantage for Switzerland. Other governments should follow this initiative.
What predictions do you have for the industry over the course of the next 12-18 months?
1. Consolidation will and must be allowed to continue. Europe’s 28 countries with 3-4 mobile operators each limits the ability of each to gain scale. This is a strategic disadvantage compared to operators in other large countries like the US, India or China.
2. Over time with NB-IoT, LTE-M and 5G-enabled low-latency services, M2M/IoT will become more important than consumer business in both volume and revenue. Operators with central IoT/M2M platform will have a competitive advantage over those with a decentralized service.
3. International end-to-end quality of service will become more important. M2M/IoT will gain in significance and so critical use cases like Industry 4.0 or remote surgery will increase. Operators offering SLAs with standardized KPIs, etc., will have a competitive advantage.
4. Customers will continue to value the trust and security they can have with carriers’ networks and services as opposed to OTTs. Operators are becoming faster, more agile, less complex while for many OTTs the opposite is true.