Operators wrestle for control of smart home with Amazon, Google

Like other tier 1 operators, Telefonica is facing a battle to retain customers not just for the primary TV service but also for control of the smart home where Google and Amazon in particular have made great inroads on the back of voice-driven assistants. But Telefonica differs from most rivals in favoring a dedicated device, its Movistar Home gateway, to host the UI for converged services, rather than the TV itself or the smartphone which the user probably already has.

Telefonica’s pitch is that the device doubles as the remote controlling the TV service while also incorporating its AI-based apps and algorithms for smart home functions. It can also host third party apps that integrate with the TV service for added value and, on this front, Telefonica has entered alliances with key partners in its domestic Spanish market, including airline Iberia and retail department store group El Corte Inglés. Integration with the TV service brings the potential for ordering products featured on the big screen via the device, bringing monetization opportunities as well as facility for the users.

The device has an 8-inch display and has the power to run apps or algorithms that presumably Telefonica considered would be too resource intensive for smartphones or even laptops. But we doubt whether in an economy where growth is tending down towards zero at the end of 2019 there will be the hoped-for consumer uptake during Telefonica’s Christmas campaign for the Movistar Home, given the device is priced at €79 ($90). Even if it was given away free, there is limited appetite for another device in the home when the TV via a standard remote or more likely smartphone would serve better for the UI, while the set top would be better placed to operate as the smart home hub.

Telefonica seems to be betting on the power of its AI platform called Aura, enabling its Movistar Home device to deliver more advanced features than its competitors, but it is unclear what the differentiators are at present, beyond the ability to shop for products shown on the TV screen. Being able to check in and monitor flight status on the TV is hardly a game changer when this can be done perfectly well anyway via a smartphone accessing the airline’s app or website.

It is true some other tier 1s are peddling dedicated devices for smart home or ancillary services that build out from the TV platform, but usually these are ones that provide proven benefits on their own. Orange and Deutsche Telekom for example have collaborated to develop a smart speaker, on the basis that this is becoming the hub of choice for the digital home. They have co-developed a common underlying platform that is then tweaked to yield branded versions, the Magenta Speaker for Telekom and the Djingo Speaker for Orange.

Curiously at first sight, considering that the technology is fundamentally the same, Telekom only launched Magenta in September 2019, a year after its announcement and six months later than Orange launched in France. However, both companies have been struggling with positioning and while there is no doubt smart speakers are becoming home hubs, even operators with large established broadband bases like these two will struggle to compete with Amazon and Google which dominate the field.

Globally, excluding China, Amazon is still clearly top in smart speakers on 48% with Google on 30% but with the gap narrowing steadily so that most predictions have the two neck and neck by 2022. However, when China is included, Baidu and Alibaba are both slightly ahead of Google, while Xiaomi is not far behind, so it is quite likely that globally there will be four or five major players jostling for leadership position.

Against that backdrop it is hard to see pay TV operators getting a look-in, although as we pointed out when Telekom did eventually launch Magneta, operators will play the privacy card, citing concerns over Amazon and Google listening in to conversations. This may gain some ground within the operators’ existing customer bases especially as, unlike Telefonica with Movistar Home, there is the option of bundling the speakers with subscription packages for an extra €5 a month, which imposes less friction or pain. Indeed, Orange has stressed that the speakers are being funded by subscription payments to emphasize it has no need to monetize the data that could potentially be collected, differentiating itself from Amazon and Google that way.

Yet again, as we noted, this argument is rather compromised by Telekom at least incorporating Amazon Alexa as a “second voice service,” in the hope of enticing consumers that way. Surely then most consumers will bypass Telekom’s voice service to enjoy the Alexa environment with its array of third-party integrations whose richness no individual telco can match. We note that in the US even Comcast has been floundering in its attempt to stave off invasion by Google and Amazon into homes of its broadband customers. Comcast offers a home hub that allows broadband-only customers to aggregate streaming apps like Netflix and YouTube using a voice remote while also controlling home services. But with other competitors outside China tending to standardize on Amazon and Google for voice control, it is an uphill struggle for broadband providers to resist. Facebook’s Portal, for example, uses Amazon’s Alexa, while the likes of Lenovo Smart Display are based on Google Assistant.

There are though opportunities for operators in the smart home ecosystem providing they play to their strengths and do not attempt to resist tidal industry forces. This is where Android comes into the equation, with a number of operators just below the top tier building on this to combine smart home and TV services. Sweden’s largest cable operator Com Hem is an example, tapping into the Scandinavian tendency for homes to be provided by associations so that it can offer services to those companies with administrative functions and then move in on consumer facing applications such as home security. Com Hem is a firm advocate of Android Operator Tier, the version developed by Google to give freedom over the UI and how apps are launched, while providing immediate access to the full Google app store.

Google’s Edward Corn, EMEA head of Android TV partnerships, has been busy evangelizing Operator Tier around Europe with the argument that it offers opportunities beyond TV into the home, with Com Hem exemplifying that. Com Hem’s EVP Strategy & Business Development Joel Westin has pointed to the value of social media-type services that connect people locally within communities or tenement blocks that have gained traction despite these also being available from the major players like Facebook. Perhaps there is some virtue then in the argument that privacy and trust come into the equation.

However, not all operators fully trust Google itself, which still has its finger in the pie with Operator Tier. At the same time the appeal of Android itself as a seasoned platform for TV that saves so much effort integrating apps for OTT services is strong. For this reason, some larger operators, such as Swisscom, have opted instead for the alternative Android Open Source Project (AOSP), which still brings the integration capabilities but without access to the Google app store.

Swisscom argues that only with AOSP is the user experience totally under the operator’s control, with Operator Tier imposing certain dependencies, such as over placement of Play Store and Search.

In practice, aspects of AOSP that are seen as benefits for some tier 1 operators are precisely why some smaller ones have gone for Operator Tier. The latter for example allows unrestricted access to the Android app ecosystem, which means that third parties can pop up in the operator’s EPG or global search. This would be cited as a pro by Com Hem but a con by Swisscom.

In some ways then the smart home is actually easier to negotiate for smaller operators that know they cannot take on the might of the technology giants.