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22/07/2020by EOS Intelligence EOS Intelligence No Comments

Nigerian Power Woes Cripple Businesses

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Achieving efficient generation and distribution of electricity in Nigeria has over the years remained a sore point and a major threat to growth of the economy. Poor electricity supply has serious consequences for the businesses in the country, with several existing companies struggling to maintain profitability and new players shying away from entering the market. The government has undertaken several measures, including transferring majority of the power infrastructure from government to private hands, however, it has not managed to improve the situation. Ambitious policies and agreements with multinational energy companies might just be the key to solve Nigeria’s energy problems.

Nigeria is considered most abundant in natural reserves and is the largest economy in Sub-Saharan Africa. The country has the potential to generate about 11,000-12,000 MW of electric power from existing plants. Despite this, Nigeria is only able to generate about 4,000 MW on most days, which is less than one-third of what is required to provide for its more than 190 million citizens.

According to a 2014 World Bank survey, about 27% of Nigerian businesses identified electricity as the main hurdle in doing business. Also, IMF estimated per capita electricity production in Nigeria to be less than 25% of that of the Sub-Saharan Africa average. The gap between the electricity generation capacity and demand in the country is a result of poorly maintained electricity generation facilities and very little investment in new power plants as well as an outdated transmission and distribution infrastructure.

Government action or lack thereof

Nigeria’s power sector has suffered from mismanagement and corruption for many years. Since Nigeria’s independence from the British rule in 1960, the government set up a heavily subsidized grid, which was subject to high level of corruption and was never able to generate enough profits to finance new power plants or upgrade the transmission and distribution network to meet the needs of the growing population. In addition to its inability to upgrade, the electricity sector suffers from a huge range of issues, ranging from leakages in power transmission and distribution, to lack of maintenance, to theft and vandalism.

In an effort to combat the country’s energy poverty, the government liberalized the power sector in the early 2001 in hope to attract foreign investments. However, the plan didn’t work as expected. Instead, privatization increased corruption as the political members tried to appoint political allies and family members to head the new distribution companies.

According to a 2018 publication by the Istituto Affari Internazionali, an Italian non-profit think tank, Nigeria has been steadily generating 4,000 MW/h since 2005, with no increase in output over the past decade. This is costing the Nigerian economy a great deal as businesses and industries suffer due to regular power outages. Moreover, as per a 2018 estimate by A2EI (a Berlin-based collaborative R&D platform in the solar off-grid industry), Nigerians spend NGN4.3 billion (US$12 million) annually on small gasoline generators, of which NGN2.9 billion (US$ 8 million) is spent on fuel.

Nigeria’s energy poverty affecting businesses across industries and sizes

Manufacturing and trading industry

Poor electricity supply is affecting the manufacturing industry in an immense way. A typical Nigerian factory experiences power outage or voltage fluctuations approximately eight to ten times a week, with each power outage lasting about two hours. This adds to the cost of production through lost material, damaged products, and restarting the factory equipment. This makes the manufacturing business unattractive to investors since the overhead costs are high, return is low, and the business environment is largely uncertain.

To combat the power issue, companies depend on diesel generators for power backup, however, this significantly adds to the cost of the product, which in turn affects the competitiveness of the business since whatever is produced in the country is more expensive when compared with production costs in other regions.

In addition to electricity shortage, prices and availability of fuel for operating the generators also impact businesses. While small business generators are powered by price-capped gasoline, the larger generators that power big businesses, apartment complexes, and big homes can only be run on diesel, which in turn is volatile with regards to pricing and supply.

According to a market intelligence firm based in Lagos, SBM Intelligence, diesel is among the top three cost heads for many Nigerian firms. Moreover, with the price of diesel also being volatile, many businesses operate with a constant risk of increasing overhead cost, which may result in reduction in output, downsizing, or even business closure. This was seen in May 2015 when Nigeria was hit by fuel scarcity, which caused many traders and businesses to shut shop as they could not afford diesel for their generators.

One business sector most impacted by Nigeria’s energy poverty is the perishable food sector. Nigeria’s fuel scarcity in 2015, caused the loss of approximately NGN10 million (US$27,000) worth of food items. Similarly, as per members of the Ajeromi Frozen Foods Market Association in Lagos, a severe bout of power outage in March 2016 resulted in the decay (and thereby loss) of frozen food worth NGN20 million (US$55,000) in just five days.

Apart from this, small businesses are also severely impacted by Nigeria’s power shortage. Most small shops cannot afford complete generator back up and therefore suffer with limited working hours and sub-par working conditions. For the ones that can afford a generator, the cost of it is very high, squeezing out profits from their already limited setup. For instance, a small tailor shop with a daily income of about NGN4,000 (US$11) spends close to NGN3,000 (US$8.2) daily on fueling their generator to keep the business going, highlighting the disproportionately high cost of electricity to run a small business in the country.

According to a market intelligence firm based in Lagos, SBM Intelligence, diesel is among the top three cost heads for many Nigerian firms. Moreover, with the price of diesel also being volatile, many businesses operate with a constant risk of increasing overhead cost, which may result in reduction in output, downsizing, or even business closure.

Technology sector

Nigeria’s tech industry accords for approximately 14% of the Nigeria’s GDP in 2019 and is poised to be the next frontier for growth. However, constant power outages have become a serious problem for the booming sector. Most tech companies operate around the clock to provide a 24*7 service to their customers, however, in Nigeria, most app companies operate for only 8-9 hours a day as they cannot sustain generator costs for the entire 24 hours. This impacts the quality of service provided.

As per Chris Oyeniyi, owner of a smartphone app called KariGo, electricity cost (including generator cost) on a monthly basis is about US$800 for the bare minimum number of operating hours. The same electricity bill would be around US$100 if the public power grid was dependable. This hampers growth for tech start-ups, which have to allocate significant amount of their funds towards power supply instead of using them for expanding, both in terms of scale and staff.

In an attempt to overcome this challenge, several technology start-ups prefer to work in co-working spaces that allow them to pool their electricity bills. This concept is becoming very popular in the country, however, despite this, generator costs remain very high to provide around the clock services.

In addition to the high costs, technology firms also operate with a constant risk of losing all their digital work (that is not backed up) or hampering important software updates in case of a sudden blackout.

According to a survey of 93 Nigerian tech start-ups by the Center for Global Development conducted in 2019, 57% of start-ups found power outages to be one of the biggest challenges for their business. Moreover, one-third of the firms surveyed reported losing more than 20% of their sales due to power outages.

Other sectors

Just like the manufacturing and technology sector, most of the other industries are also impacted by irregular power supply and thereby rely on large generators to run their operations. This puts additional cost pressures on the business.

In 2019, Temi Popoola, the West Africa chief executive of investment bank Renaissance Capital, stated that diesel accounts for approximately 20-30% of banks’ operating expenses in Nigeria, which is significantly higher compared with other developing countries.

The telecom sector is also vulnerable to the power outages faced by the country. In 2015, MTN, a telecom giant, stated that it spends approximately NGN8 billion (US$22 million) annually on diesel to keep its network online. This is a huge cost and accounts for about 60% of its operating costs. Due to such heavy operating costs, the company is forced to focus more on sustaining its day-to-day activities rather than investing in any other area such as expanding its network.

The road ahead

Currently there does not seem to be any light at the end of the tunnel for Nigeria’s power woes. With high level of corruption paralyzing the sector and limited amount of new private investment, the sector is in a state of limbo.

Moreover, there are constant disagreements between the Nigerian Bulk Electricity Trading Company (NBET) and the private power generating companies, which further impact electricity supply. Recently, in September 2019, another issue came into the light, when NBET directed all thermal electricity generation companies (GenCos) to pay an administrative charge. To oppose this, the GenCos have threatened to shut down power production and supply and argued that there is no policy directive to that effect by the Nigerian Electricity Regulatory Commission (NERC). The two sides have not managed to reach any consensus as of now. However, such additional charges will further put financial pressure on already struggling GenCos, who have largely failed to improve their generation levels due to lack of capital for maintenance and operation. This will further negatively impact the already dismal grid supply levels.

Nigeria is dealing with another legal dispute over a hydro power project with a proposed capacity of 3,050 MW. In 2003, the Nigerian government awarded the build-operate-transfer (BOT) contract to a local company, Sunrise Power and Transmission Company Limited (SPTCL) and followed it up with signing a general project execution agreement with the company in November 2012. However, simultaneously, the government also awarded the bid to execute the hydro project to a JV between China Gezhouba Group Corporation of China (CGGCC) and China Geo-Engineering Group Corporation (CGGC) in 2006.

Moreover, in 2017, it signed another engineering, procurement and construction (EPC) contract with Sinohhydro Corporation of China, CGGCC and CGGC to form a joint venture but excluded SPTCL from the agreement. Following this SPTCL filed a legal suit against the federal government and its Chinese partners at the International Chamber of Commerce (ICC) in Paris for breaching the contract. The government risks approximately US$2.3 million in fines in this legal tussle. Moreover, the Chinese government refused to provide the required funding for the project (US$5.8 billion) until the legal dispute is settled. Thus, the project is on hold until any legal solution is reached.

However, that being said, the Nigerian government is ambitiously trying to revive the country’s electricity sector. In 2017, the government developed a National Renewable Energy and Energy Efficiency Plan, under which it aims to achieve 30,000 MW electricity by 2030, with renewable energy accounting for 30% of the overall energy mix (9,000 MW). The government plans to adopt ‘The Sustainable Energy for All Action Agenda’ (SE4ALL), which is a UN initiative to support sustainable energy in Africa, with targets of 90% Nigerians having access to electricity by 2030.

To this effect, in May 2019, Central Bank of Nigeria announced the disbursement of NGN120.2 billion (US$330 million) to different distribution companies, power generating companies, service providers, and gas companies in order to improve their liquidity situation. Furthermore, in 2018, the government secured a loan of US$485 million from the World Bank to upgrade the country’s electricity transmission network and infrastructure and is currently in talks about a US$2.5 billion additional loan to uplift the power sector.

The government has also signed a six year power deal with the German energy giant Siemens, with an aim to generate a minimum of 25,000 MW of electricity by 2025. As a part of this deal, Siemens will work alongside the Transmission Company of Nigeria to achieve 7,000 MW and 11,000 MW of reliable power supply by 2021 and 2023, respectively. Thus in addition to building new generation capacity, the government is also focusing on improving supply from the existing grids, which has been stagnant at around 4,000 MW over more than a decade.

Moreover, the country’s energy sector is receiving significant support from international bodies such as PowerAfrica, which is a wing of the United States Agency for International Development (USAID). Over the past few years, PowerAfrica has been assisting the government in agreements on solar projects that help Nigeria in diversifying its energy mix. In 2015, PowerAfrica supported Nigeria’s first private IPP Project (the Azura Edo Project) to reach financial close in 2015. It also assisted it in securing a US$50 million investment by the Overseas Private Investment Corporation (OPIC). The Azura plant (the first project initiated by Azura power) became operational in 2018 with 461 MW capacity. It is the first phase of the 1,500 MW IPP (Independent Power Project) facility that is being developed in Nigeria. In December 2019, Africa50 (a pan-Africa infrastructure investment platform) expressed its plans to invest in the Azura power plant.

Growing private investments, international support, and supportive government policies as well as investment may just lift up the Nigerian electricity sector, which has been in dire need for reform over several decades.

In 2017, the Nigerian government developed a National Renewable Energy and Energy Efficiency Plan, under which it aims to achieve 30,000 MW electricity by 2030, with renewable energy accounting for 30% of the overall energy mix (9,000 MW).

EOS Perspective

As per the International Centre for Investigative Reporting (ICIR), the Nigerian government has spent approximately NGN1.164 trillion (US$3.2 billion) on the power sector during 2011-2018 without any significant improvement in energy supply. Poor power supply has been crippling the country for many decades now.

Large businesses, especially in the technology sector, could help boost the economy but like any other business, they require electricity to run successfully. Nigeria lacks the basic business environment at the moment. Moreover, ongoing issues with the private generation players further hamper the sectors growth and performance.

Recently, the government has made several moves in the right direction (especially with regards to investment in renewable energy sources), but it is too early to comment if they could solve Nigeria’s decades-long energy problem. Moreover, the real issue is not about investment levels or government policies, but about the implementation of these initiatives. As seen previously at the time of privatization of the sector, the government failed to uplift the sector as it was plagued by corruption, favoritism, and bureaucracy.

Similarly, the government adopted a policy in 2010 called Vision 20:20, wherein it aimed to be featured in the top 20 economies globally by 2020. Within the power sector, Vision 20:20 aimed to increase generation capacity to 20,000 MW by 2015 and 35,000 MW by 2020. However, it failed to make significant investments or incentivize private players to invest in the sector and failed miserably in its goals. If the same is repeated now, the result will not be very different.

The government’s plans can only be implemented if there is substantial transformation of the entire sector, with the private sector participating equally in the upliftment. The government needs to provide significant financial incentives for new power projects and must also restructure the distribution companies to improve liquidity. Lastly it must counter the corruption and bureaucracy seeped into the sector and ensure that generating companies receive complete and timely cost-reflective tariff from the government. While these measures are difficult to achieve, they are the only way the sector can see any respite in the coming years.

Blockchain a Frontline Warrior in Battling Coronavirus Pandemic by EOS Intelligence

09/07/2020by EOS Intelligence EOS Intelligence No Comments

Blockchain: a Frontline Warrior in Battling COVID-19 Pandemic

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SARS-COV-2 has brought the world to a standstill. Technology and its creative uses have been playing a pivotal role in sustaining lives during the pandemic as well as combating the crisis. One such technology that has been at the forefront of the pandemic is blockchain. From mitigating supply chain issues with medicines and protection gear to facilitating transparency in donations to effectively tracking the spread of the virus and protecting patient privacy, blockchain technology is being applied across the spectrum to contain and manage the outbreak.

The current pandemic has brought to light many inefficiencies and limitations of the existing global healthcare systems, wherein governments across the globe are grappling to control the outbreak, challenged by the lack of a unified, interconnected, and trusted network to share data and track cases. Blockchain has several inherent properties, such as decentralized ledger, transparency, and immutability, that make it suitable for handling and managing various aspects of containing the pandemic.

Outbreak tracking

Global health authorities and governments across the globe are having a hard time gathering authentic data regarding tests and patient numbers, hospital beds, recoveries, etc. Currently, most of the data circulating is disparate and comes from multiple sources, such as hospitals, labs, the public, and media, instead of one authorized source. This is extremely damaging since it results in the creation of a great amount of inaccurate and duplicate data, which, if trusted, makes the process of tracking and containment both time-consuming and ineffective. This is counter-productive to the management of a disease that is as fast-spreading as COVID-19.

Blockchain technology can come into play in effectively tackling this issue. Owing to its distributed and immutable nature, blockchain can provide a feasible solution for tracking the outbreak. Blockchain-based apps facilitate organizations across the globe to form a single connected network where data can be shared in real time and securely. Moreover, since data stored in the blockchain is immutable, it is protected against unauthorized changes, and its distributed nature ensures protection against fraudulent data (since each entry requires consensus algorithms and smart contracts). Lastly, blockchain efficiently manages high volumes of data (as in the cases of the COVID-19 pandemic) on a real-time basis, which cannot be managed using human resources.

However, in addition to these factors, the aspect that stands out the most and makes the blockchain technology ideal for monitoring and managing outbreak-related information is the level of privacy it offers. People do not wish for their information to be shared publicly or be used for other purposes. Thus, it is a challenge to get patients to collaborate with governments and healthcare institutions to share information regarding their condition and wellness. For instance, the Israeli government recently permitted healthcare institutions to track citizens’ mobile phones to control the spread of coronavirus. This has raised concerns from human rights organizations as citizens are not comfortable with sharing their personal information.

Since blockchain uses a distributed ledger, which ensures accountability and transparency with regard to access to its stored data, the information shared through blockchain cannot be extracted or misused. Moreover, information stored in a blockchain cannot be hacked. This encourages patients to share information regarding their condition, symptoms, location, and underlying health conditions without fear of the information being misused or shared with any third party.

Furthermore, information shared by patients in a blockchain network may not only be used for tracking the outbreak but also facilitate health centers’ study of the disease characteristics and patterns to develop treatment and solutions.

For instance, WHO has been using a blockchain-based data streaming platform, called MiPasa, which facilitates the sharing of information amongst need-to-know organizations such as state authorities and health officials. The platform is built on top of Hyperledger Fabric and partners with IBM for blockchain and cloud platforms. The application cross-references siloed location data with health information to track and prevent the spread of the outbreak, all while protecting patient privacy.

In another example, an Atlanta-based developer of blockchain-enabled healthcare applications, Acoer, developed an application called HashLog, which allows real-time logging and data visualization of the spread of the infection. HashLog provides real-time updates on the spread of the disease by tracking the movement of infected people to identify potential outbreaks and prevent further spread. The application uses the Hedera Hashgraph distributed ledger technology, and each entry is recorded through a verified hash reference on the ledger, ensuring that the data is correct.

Donations

In addition to tracking and preventing outbreaks, blockchain also plays an important role in securing donations. From hospitals and state authorities with insufficient funds for medical supplies to economically weaker sections of the population losing sources of income due to lockdown, the current pandemic has displaced a huge number of people across the globe. Thus, in such times, donations play a critical role in sustaining livelihoods and providing healthcare supplies to the affected people. However, given the fraud associated with donations in recent times, lack of trust is a common factor affecting the success of donations. Several individuals want to help and donate, however, are discouraged due to fear of their money being misused.

For instance in India, the government and police warned citizens against several fake relief schemes that have been floating in the name of COVID-19 relief, some even mirroring the Prime Ministers Relief Fund. These kinds of activities deter willing people from donating.

Blockchain technology can be used to effectively combat this issue. Since all transactions in the blockchain are secure, transparent, and traceable, donors can track their funds and see where they are utilized. This gives confidence to donors that their funds are being used for the exact purpose that they intended.

One such example is Hangzhou-based blockchain startup Hyperchain, which built a blockchain-based donation tracking platform for supporting government and hospitals (such as Tangshan People’s Hospital, Jiayu People’s Hospital, and Xiantao No. 1 People’s Hospital) in the donation process. The platform has attracted more than US$2 million in donations.

Supply chain tracking

Blockchain technology has been deemed extremely useful in managing and tracing the supply chain in several sectors as retail (for more insights on this, read our article Blockchain Paving Its Way into Retail Industry). However, given the current pandemic, the technology can also utilize similar functionalities and play a significant role in tracking of medical supplies.

Given the pace of the spread of COVID-19, authorities and healthcare organizations across the globe have faced a shortage of medical supplies, such as masks, sanitizers, PPE kits, ventilators, testing equipment, as well as some medicines. This drastic increase in demand has resulted in the distribution of a large number of counterfeit and faulty products. Blockchain technology can play a significant role to combat this. Given the data provenance in blockchain and its immutable nature, it is possible to identify and trace back every touchpoint of the medical supplies to ensure its authenticity.

In addition to filtering counterfeit products, blockchain also helps streamline the supply chain process to ensure hospitals and doctors secure timely supplies to treat patients. Blockchain can provide real-time updates regarding demand so that medical manufacturers can adjust production levels accordingly. In addition, it can help fast-track supply chain contracts through the use of smart contracts and facilitate faster payments, thereby improving overall efficiency.

In February 2020, China-based AliPay, along with the Zhejiang Provincial Health Commission and the Economy and Information Technology Department, launched a blockchain-based platform to facilitate the tracking of medical supplies required for fighting SARS-COV-2. The platform has improved trust within the medical supply chain since it records and tracks the entire provenance of preventive supplies, including masks, gloves, and PPE kits.

Apart from the medical supply chain, blockchain can also help limit supply chain disruptions faced by several other industries due to lockdowns in several parts of the world. However, companies that are using blockchain for managing their supply chain have an advantage as they have better visibility into their complete supply chain and thereby can identify points of disruption in a timely manner.

Avoiding future pandemics

Blockchain is on the front line for fighting the current pandemic, but it also has the potential to prevent future disease outbreaks. Most of the current healthcare surveillance systems across the globe are outdated and lack the required timeliness and efficiency in sharing information with local as well as international health enforcement organizations. Moreover, sometimes there is a question of deliberate delay in the sharing of critical information.

To this effect, blockchain-based health surveillance systems can help mitigate future outbreaks. Since they operate on a decentralized ledger, the surveillance data is transparently available to health organizations across the globe in a real-time manner, without the fear of any political disruptions. Timely knowledge of a potential outbreak is the first and most critical step in preventing a similar situation in the future.

In addition to the above-mentioned applications, blockchain companies, along with institutions, are developing creative solutions that help reduce challenges faced by people due to COVID-19 in their day-to-day lives. For instance, Toronto-based blockchain company Emerge launched a public safety app called Civitas, which assists citizens and local authorities across Latin America. This app matches one’s official ID to confidential medical records stored in the blockchain to identify whether the person is allowed to leave the house or not. Thus, the app allows police to verify if the person has travel permission just on the basis of their government ID and without gaining access to the person’s medical records. The app also determines the safest time and day for going out for essentials for people who are experiencing COVID-like symptoms.

Moreover, as discussed in our previous article (Blockchain Scores Well in the Education Sector), blockchain is also extremely useful in the virtual education scenario, which is now the new way of schooling for a large part of students across the globe.

EOS Perspective

Blockchain technology has several inherent properties that make it ideal for helping to manage and combat the current pandemic. Its decentralized, traceable, and immutable properties make it especially desirable for managing contact tracing and outbreak tracking, which are critical in handling a pandemic efficiently. Moreover, the benefits of blockchain are further amplified when used alongside other technologies, such as artificial intelligence, cloud computing, and big data.

However, despite its several uses, the issue of scalability plagues blockchain adaption at a larger scale. Blockchain is still a nascent technology and lacks high-level scalability. With COVID-19 affecting most of the world, the current blockchain companies do not have the level of scalability to provide all-encompassing global-level solutions.

Furthermore, blockchain technology does not operate alone, and it needs to be configured with the operating legacy system of companies and other stakeholders. However, most legacy systems are relatively old and, therefore, do not support blockchain technology. Updating or reconfiguring a legacy system is a tedious process (both in terms of time and money), and companies may not want to tie up resources for that at the current time.

Given these drawbacks, blockchain may not be deployed at a global-scale level during this pandemic, however, its inherent benefits have made companies, authorities, and global health organizations ponder, explore, and evaluate its potential in managing such situations in the future. While the COVID-19 pandemic has caught the world largely unprepared, organizations and companies across the globe are gearing up to ensure this history is not repeated, and blockchain technology has emerged as a critical part of the solution.

02/07/2020by EOS Intelligence EOS Intelligence No Comments

The Future of Urban Mobility Is “Up, in the Air”

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Traffic congestion is a major problem in most metropolitan areas globally. Ever-rising number of vehicles exceed the road infrastructure capacities, prompting the need to look for possibilities of transportation beyond roads. Electric Vertical Take-Off and Landing (eVTOL) vehicles – more commonly known as air taxis, unmanned aerial vehicles (UAVs), or autonomous air vehicles (AAVs) – are considered as a genuine solution to the problem. While they are still in nascent stage of development, we look at the opportunities that may arise in the Urban Air Mobility (UAM) market.

Electric Vertical Take-Off and Landing, or eVTOLs, for a layman, can simply be defined as electric-powered vehicles that have vertical take-off or landing capabilities similar to a helicopter, minimizing the space required to become air-borne.

While the concept dates back to the early 2010s, development in the eVTOL space has gathered pace since 2016, when Uber released its Uber Elevate white paper envisaging its plans to present a working test prototype by 2020, and commercially launch an air taxi service in 2023.

State of eVTOL development

Uber’s announcement acted as a stimulus for eVTOL manufacturers to fast-track the development and testing of their aerial commuter vehicles. Several leading eVTOL manufacturers have conducted unmanned and manned testing of their prototypes in controlled air spaces across major cities across the world, with a view to ensure the operability and safety of these air taxis for commercial deployment.

In 2016, Germany-based Volocopter became the first manufacturer to get a permit to fly its eVTOL prototype in Germany. In 2017, the company conducted a successful public demonstration of its air taxi – making an unmanned flight near Jumeirah Beach Park in Dubai, with an aim to launch a commercial pilot air taxi program in Dubai in early 2020s. Since then, the company has completed similar tests in the USA in 2018 and Singapore in 2019.

Chinese company EHang has stolen a march on its competitors, becoming the first company to successfully commercialize passenger-grade autonomous aerial vehicles. As of December 2019, the company had delivered 38 two-seater passenger-grade air taxi (EHang 216) to private customers globally.

Uber has also entered in partnerships with several eVTOL manufacturers (mostly companies owned or backed by aircraft manufactures), engineering firms, real estate companies, and research organizations, over the past four years, including Joby Aviation, Aurora Flight Sciences (a Boeing subsidiary), Embraer, Bell, Pipistrel, Karem Aircraft, Jaunt Air Mobility, and Hyundai.

Other key manufacturers such as Lilium, Opener, Kitty Hawk, and Airbus have also conducted multiple flight tests globally since 2017.

Companies have also taken initiatives to develop other critical components of the air taxi business. Uber entered into a partnership with NASA in 2017 to develop unmanned air traffic and airspace management systems, which could help Uber smoothly drive its air taxi operations.

Companies are also partnering with real estate companies to develop dedicated infrastructure which could act as nodes for any air taxi network, as well as with power solutions providers to deploy vehicle charging solutions at these nodes.

Capital investments

Various analyst firms believe that eVTOLs present a high growth opportunity. Deloitte, for example, forecasts the eVTOL market to be valued at US$3.4 billion in 2025, and grow to US$17.7 billion by 2040 – a CAGR of 11.6%. German consulting firm Horvath & Partners estimates the number of air taxis could exceed 23,000 by year 2035.

Investors are banking on this growth potential, which is evident from the amount of investments flowing into eVTOL development companies.

In January 2020, US-based Joby Aviation raised US$590 million in Series C funding led by Toyota (which invested US$394 million), making it the most funded eVTOL start-up globally. Volocopter also raised U$55 million in September 2019 in series of funding led by China-based Geely group. Lilium, which is backed by Tencent, is also looking to raise more than U$400 million for its eVTOL business through venture capital.

EOS Perspective

…on opportunities in UAM Space

Uber’s air taxi vision has created opportunities for multiple stakeholders across the air taxi value chain. Several aircraft and automotive companies are participating to develop commercially practical and viable eVTOL vehicles, while real estate companies are delving into design infrastructure solutions for vehicle landing and take-off.

Innovators are teaming up to develop new-age solutions which would be able to manage air space and aerial traffic, while also ensuring the safety of the commuters (both in the air and on the land).

There will be opportunities for analytics companies – whether it is related to determining the service prices (pricing analytics) or creating innovating customer solutions (such as loyalty programs). Once eVTOLs are commercially deployed, after-market ancillary and repair solutions are also expected to gain demand.

Additionally, the social impact of these air taxis – which will help generate employment opportunities for both technical and non-technical personnel – cannot be underestimated.

…on Uber’s plans to commercialize air taxis

Uber’s plans to commercially launch an air taxi service by 2023 might perhaps be a bit too optimistic. However, given the state of the development of eVTOLs and the level of support it is generating from governments in its key target markets (including the USA, Australia, and Japan), the goal may be achievable – more likely by 2025.

However, the initial deployment, which is expected to comprise only 40-50 eVTOLs, is likely to be limited to the affluent section of the potential customers, due to limited access and high costs of such service.

Such services may be able to reach mass consumers only once the eVTOLs have a widespread deployment, which is unlikely to happen before 2030.

An extensive deployment and increased mileage (either in the form of distance covered or number of flights) is likely to help achieve operational efficiencies, eventually leading to lower pricing of air taxi services, making them more affordable for mass consumers. Uber plans to bring the pricing of its air taxi services at levels similar to that of its UberX service in the long run.

Whether Uber is able to achieve its target or not, the urban air mobility market shows significant potential and attracts considerable interest. Given the current level of development in eVTOL space and partnerships to build related infrastructure, there is a definite sense of optimism – the future of urban mobility is definitely “up, in the air”.

18/05/2020by EOS Intelligence EOS Intelligence No Comments

Blockchain Scores Well in the Education Sector

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Blockchain has now been widely accepted as a technology offering superior capabilities when it comes to data security, transparency, and immutability. This has made it extremely relevant in industries, such as finance and healthcare, where security is critical. However, after getting a foothold in such industries, the technology is extending its reach beyond current uses into other sectors. One such industry is education, where blockchain can facilitate a safe, secure, and auditable ledger covering all education-based data and transactions. However, since blockchain is still new and relatively unexplored in this space, its wide applicability and commercial acceptability is yet to be proven.

Blockchain is fast finding its ground across several industries and education industry seems to be no exception. While still behind in terms of implementation, especially when compared with other sectors such as finance and healthcare, education sector is exploring various blockchain-based applications that can improve data security, facilitate degree verification, and prevent plagiarism, among other things.

Read our other articles on blockchain where we talk about the technology gaining prominence in several industries, including healthcare, retail, banking, car rental, and aviation.

Data breach/security

Industries such as finance and health have been using blockchain to protect their customers’ data. Blockchain can find similar application in the education sector, which is also highly susceptible to data breaches. As per Gamalto, a Netherlands-based international digital security firm, in 2017, the education sector was third (after finance and healthcare industry) with regards to the highest number of experienced data breaches, accounting for 13% of all data breaches across industries.

The use of blockchain to protect student information and records can help mitigate the issue of data breaches. With schools and universities storing data digitally on blockchain, they would be able to store and share student data without making it accessible to hackers. Moreover, data stored on blockchain would help improve transparency and accuracy, reduce human errors and paper-based processes, and eliminate fraudulence.

With schools and universities storing data digitally on blockchain, they would be able to store and share student data without making it accessible to hackers.

Data being stored on blockchain also helps employers be assured that the candidate or student seeking employment has authentic degrees and qualifications.

In February 2019, the Maltese government signed a contract with blockchain startup, Learning Machine, to store all educational records and certificates in the country on a blockchain. The project is a two-year pilot project and aims at ensuring that all educational certificates, including university and secondary school certificates (encompassing state, church, and independent schools), are issued and stored on blockchain. The project is expected to minimize bureaucracy and provide greater security for students’ private data.

Data access and verification

Currently, most institutions store student data within their own systems and the student needs to approach the university to obtain the certification. Alternatively, prospective employers need to verify the authenticity of a candidate’s certificates from the respective university/institution. In cases where a student has multiple degrees and certification, this process becomes cumbersome and susceptible to errors.

Blockchain-based diplomas can offer an easy solution to this issue. With certifications being stored on a blockchain, students can obtain fast and easy access to their records and can share them with potential employers without the latter being concerned about their authenticity.

With certifications being stored on a blockchain, students can obtain fast and easy access to their records and can share them with potential employers without the latter being concerned about their authenticity.

Moreover, in case a university closes down or the credential records are destroyed due to extraordinary circumstances (fire, earthquake, war, etc.), student’s certifications still hold merit and would be verifiable based on blockchain records.

In 2017, MIT introduced a pilot program under which it offered digital diplomas to 111 graduates in addition to the traditional diplomas. These graduates were given an option to receive their diplomas on their smartphones via an app, called the Blockcerts Wallets. The pilot project, which was a partnership between MIT and Massachusetts-based software firm, Learning Machine, enabled students to quickly and easily share a verifiable and tamper-proof version of their diploma with prospective employers, other schools, as well as friends and family.

Apart from MIT, several other institutions offer digital credentials through blockchain. For instance, Open University’s Knowledge Media Institute (KMI) was awarded about US$550,000 (GBP 450,000) in 2018, to develop and employ blockchain technology to allow learners to manage and verify their educational and employment records.

Copyright and plagiarism

Plagiarism is a big issue in the academic world, with people having easy access to other people’s research or educational resources for free over the Internet. However, the use of blockchain can effectively address this problem. One of blockchain’s key characteristic is that information can be securely stored without being tampered with. Thus, academic materials stored in a blockchain-based platform can be accessed by public but cannot be altered or plagiarized. Moreover, any contention regarding originality of information can be tracked and protected with a time stamp.

One of blockchain’s key characteristic is that information can be securely stored without being tampered with. Thus, academic materials stored in a blockchain-based platform can be accessed by public but cannot be altered or plagiarized. Moreover, any contention regarding originality of information can be tracked and protected with a time stamp.

This also helps publishers keep track of reuse of their material and be rewarded based on actual use and reuse of their papers (similar to how they are rewarded for citations of their research material), thereby eliminating any free-use of their materials on the Internet.

Taking things a step further, teachers or publishers could be awarded crypto-coins for the reuse of their material through smart contracts. This way publishers would not have to use intermediaries such as research journals, which charge high fees and thereby limit access to the material.

Creation of decentralized education marketplaces

Education industry still operates in a closed and centralized way with universities and education providers giving credentials for courses through their own diplomas and degrees. Even in case of digital education solutions, there is always a body providing credentials for the course undertaken. Due to this, education remains relatively expensive and not approachable by all.

However, blockchain-based platforms can help solve this problem by creating decentralized education marketplaces, where the quality of education provided is validated by students and educators participating in the course. Using blockchain, these marketplaces connect students and professors who in turn use smart contacts to undertake the course they are interested in. At the end of the course the student receives an immutable certificate of completion and the ledger records the professor who taught the course.

An example of such a company is Switzerland-based ODEM, which was founded in 2017. ODEM is a blockchain-based decentralized marketplace for educational products and services, wherein professors and students come together to teach and learn various courses. The two parties engage through smart contracts and the ODEM ledger recognizes the courses a student has taken or a professor has taught, which boosts their reputation on the ODEM platform. Moreover, ODEM creates ‘skill badges’ for professors and students who complete courses in their network. This helps the decentralized platform as more students wish to undertake courses with professors who have multiple skill badges (thereby higher proficiency in the subject), while professors are also more interested to work with students with multiple badges (i.e. have displayed interest to learn and expand their skill set in the subject).

Several other blockchain-based education marketplaces have emerged. In February 2018, a blockchain-based university, called Woolf University was founded, which allowed any accredited educator to launch and teach courses that would advance users toward a degree.

EOS Perspective

Blockchain-based applications are gaining momentum across industries and the education sector is no exception. As in many other sectors, blockchain has the potential to revolutionize the industry, especially with regards to storing data and sharing credentials. Several start-ups have entered this space and are already challenging industry norms.

More so, blockchain-based start-ups in the education sector are becoming even more relevant as the world struggles with calamities such as bush fires or the coronavirus pandemic. As schools and universities shut down due to the ongoing pandemic, blockchain-based platforms play an important role in ensuring that education is not disrupted. Recently, blockchain-based educational platform, Odem, has offered its online integrated learning platform and certification management system free of charge to schools and educators that have shut down due to the virus scare. In the midst of the pandemic, the platform has received interest from Italy, Ireland, Germany, Cairo, and the USA, with a US-based University discussing uploading about 500 courses onto the Odem blockchain to combat class time lost due to the outbreak.

While blockchain appears to be in a strong position to reinvent the education sector, it is easier said than done. Blockchain requires alterations in industry-wide business processes, which not only require significant amount of investments but also involvement of government bodies to develop blockchain regulations as well as build the requisite infrastructure for the technology. Currently the cost of processing and storing data through blockchain is high and scalability remains an issue.

Moreover, currently most schools across the globe have their own systems to store and manage student’s information, progress, and certifications. These would require to be standardized if the use of blockchain grows and new standards would need to be developed. This is an extremely tedious and time consuming procedure and several schools may not be interested in sharing information with third parties.

That being said, blockchain is expected to penetrate the education sector in the years to come and many institutions have already started toying with the technology and its applications. However, just like in case of some other industries, it is yet to be seen if blockchain manages to revolutionize the entire industry or offer few niche applications in some areas and limited geographic scope. It will have a lot to do with the cost and ease of adaptation of the technology in already exiting school systems.

06/04/2020by EOS Intelligence EOS Intelligence No Comments

Moving Towards 5G – Slowly but Surely

5G technology started to become a buzzword around 2017, when it was still in a nascent stage of development, to say the least. Over the past two years, 5G has evolved from pilot testing phase to small-scale implementation. However, 5G full-scale deployment is yet to be seen and there are still many challenges to overcome. 5G is here, but it is still a long way before it becomes mainstream.

Developing 5G infrastructure is a costly affair

5G uses high frequencies and short wavelength to deliver faster speed and lower latency. Short wavelength requires shorter distance between the tower and the device, since the signal cannot penetrate buildings, trees, or other such obstacles. Therefore, telecom operators need to build 5G small-cell towers very close to the end-users, which is time consuming and expensive.

The high cost of investment is seen as a major pain point by majority of the telecom operators. A report released by a UK-based capital finance firm Greensill in February 2019 indicated that the investment in global 5G telecom infrastructure will reach US$1 trillion by 2020.

Network sharing is increasingly seen as a rational approach to reduce the individual cost of investment. In February 2018, McKinsey estimated that if three players share the 5G network, the individual costs can be reduced by 50%. However, setting up a collaboration with other telecom operators to share networks is a complex and time-consuming process. On an average, it takes about six to nine months to finalize a network sharing agreement. Each telecom operator will need to ink many such network sharing contracts to achieve wide-spread coverage of their services.

Despite the hype, demand for 5G is currently rather moderate

Despite all the promises of high-speed and uninterrupted internet connectivity, 5G is not seen as an immediate necessity. This is because the existing technology, 4G LTE, is able to fulfill most of the current consumer needs. The average 4G LTE data speed globally is estimated at around 17Mbps. Thus, 4G LTE provides sufficient speed for some of the most common mobile applications such as music streaming (~1Mbps), 1080p HD video (~5Mbps), and even online games such as Fortnite (~3Mbps).

As per a study conducted by PWC in September 2018, only about a third of 1,000 home and mobile internet users surveyed in the USA were willing to pay a premium for 5G, provided 5G delivers speed and low latency as claimed by the telecom operators. Moreover, survey finds that, for 5G internet service, home internet users were willing to pay a marginal amount of US$5.06 on average as monthly premium in addition to their current spending on 4G. Mobile internet users were willing to spend even less, a monthly premium of US$4.40 on average. To compare, a US-based telecom operator Verizon offers unlimited 4G data and calls for US$65 per month.

Moreover, most of the 4G devices do not support 5G networks, thus require consumers to spend additionally on 5G-compatible devices. This additional cost factor is also expected to act as a deterrent for mass adoption of 5G in the near term. Another survey (conducted by PWC in May 2019) of 800 internet users in the USA found that if a new device was required to access 5G, 70% of the respondents would not be willing to buy a new 5G-compatible device as soon as it was available, rather wait until they were eligible for an upgrade.

Thus, the marketing hype created around 5G have got consumers intrigued about the technology, however, they are not open to spending generously on the 5G experience.

Net neutrality law dampens motivation to invest in 5G

5G would enable network slicing allowing telecom operators to dedicate a portion or slice of their 5G network with certain functionality such as connectivity, speed, or capacity. In other words, network slicing creates various networks that share the same physical infrastructure without impacting other network functionalities.

For instance, in automated cars, one slice could be used for watching Netflix and other could be used for exchanging reliable information with other cars to avoid any road accidents. Network slicing is a real opportunity for telecom operators to optimize their 5G networks to address different needs of specific application areas.

Furthermore, differentiated services provided with each network slice using the same physical infrastructure are likely to increase revenue potential for telecom operators. A research study conducted by Ericsson in 2018 concluded that telecom operators can generate up to 35% more in revenue using network slicing (the study assumed a 5G mobile broadband had 25 million subscribers with 40 unique services launched per year over the period of five years).

However, the net neutrality regulation adopted by many countries across the world does not permit the use of network slicing technique. Net neutrality laws are in effect in the EU since 2016. In North America, Canada has net neutrality regulation in place, but in the USA the status of the law is under review. Most countries in South America have national laws to protect net neutrality. In Asia, Japan, South Korea, and India are among the few countries with net neutrality regulation. Africa, in particular, is lagging behind other regions in developing concrete framework to protect net neutrality.

The net neutrality law dictates telecom operators to treat all internet communications equally and prohibits them to charge differently for different internet services. Net neutrality law does not allow the telecom operators to use network slicing technique to create distinguished service offerings by blocking any part of bandwidth for a particular application or user group.

Telecom operators argue that this impacts the roll out of mission-critical and emergency services such as remote surgery which needs to be given priority over other applications. With net neutrality in the picture, telecom operators would not be able to benefit from the key feature of 5G technology, network slicing. This may hinder the overall 5G development.

As telecom operators voice their concerns, regulators across the world are reviewing net neutrality laws. EU opened consultations with industry stakeholders as telecom operators in the region propose 5G to be classified as a specialized service which is exempted from net neutrality laws.

In the USA, the status of net neutrality law (introduced in 2015) remains unclear. In June 2018, the Federal Communications Commission (FCC) repealed net neutrality regulation, however the decision was opposed by 22 states. State legislators have challenged the FCC decision in the US Court of Appeals and proposed to authorize the state-level legislations to re-instate net neutrality laws. In the 2019 legislative session, 29 states introduced laws to protect net neutrality at state level.

5G to multiply data privacy and security risks

5G does not drastically change the risk factors similar to those in the existing communication technologies (i.e. 2G, 3G, and 4G), however, it is going to dramatically increase the potential points of cyberattacks. This is due to the fact that the advent of 5G is expected to result in exponential increase in the number of connected devices and associated network data traffic, which will significantly expand the number and scale of cyber vulnerabilities.

A study (released in May 2019 by Business Performance Innovation (BPI) Network, a professional networking organization) based on a global survey of 145 telecom industry professionals, indicated that 94% of respondents believed that 5G will increase security and reliability concerns.

Another survey conducted in June 2019 by Cradlepoint, a cloud-based networking solutions provider, indicated that 73% of the 200 respondents (working with telecom operators) acknowledged that security concerns might delay the 5G adoption.

Explore our other Perspectives on 5G

Industry is turning to standardization and regulatory bodies for guidance on minimizing security threats associated with 5G. But existing standards do not fully address the data privacy and security concerns.

For instance, the existing 5G standard employs Authentication and Key Agreement (AKA) protocol which is a mutually authenticating system between the user device and 5G network. However, in late 2018, it was discovered that the 5G AKA has at least two vulnerabilities that could compromise users’ data privacy and security. Firstly, it allows interception of the communication between two users, enabling cyber spies to steal personal information or corrupt data. Further, the vulnerability in 5G AKA protocol could allow cyber criminals to bill the phone call or other charges to legitimate users.

5G standards are still under development and will take some time to come into effect. Since 5G is a new technology, many data privacy and security threats still remain unidentified. In anticipation of potential security flaws, telecom operators may adopt a wait-and-see approach before moving to wide-scale commercial deployment of 5G.

5G draws criticism over possible health concerns

It is believed that prolonged exposure to electromagnetic radiation from 5G networks can be harmful to human health. In 2011, cellular radiation was classified as a possible carcinogen by World Health Organization. 5G radiation is also claimed to be linked to premature aging, disruption of cell metabolism, as well as neurological disorders. However, there is little evidence to understand the actual extent of the harm caused, and therefore many countries are not giving this issue due attention.

However, rising health concerns are not going unnoticed. In September 2017, 180 medical professionals and scientists from 36 countries recommended the European Commission to postpone the deployment of the 5G network until the potential risks for human health and environment are thoroughly investigated and proven. In response, the European Commission indicated that the member states are responsible for protecting their citizens from harmful effect of electromagnetic radiation and they can introduce choice of measures based on the demographics. This means that, in the future, if the presumed adverse effect of 5G radiation on human health is proven to be true, countries can impose protectionary measures which would limit the development of 5G.

Some countries have already taken a cautious approach to 5G deployment in view of potential health risks. An example of this could be Belgium stopping a 5G test in Brussels in April 2019 due to difficulty in measuring electromagnetic radiation emissions. Around the same time, Swiss government also announced plans to introduce radiation monitoring systems to continually assess health risks posed by 5G radiation. Earlier in September 2018, Mill Valley, a city in San Francisco, USA, banned deployment of small-cell 5G towers in the city’s residential areas.

Thus, growing concerns over impact of 5G on human health is expected to further delay the 5G development and adoption.

1) According to McKinsey estimates (February 2018) based on the assumption that three players share the 5G network

2) Based on survey of 1,000 home and mobile internet users in the USA conducted in September 2018 by PWC

3) Based on survey of 800 home and mobile internet users in the USA conducted in May 2019 by PWC

4) As per Ericsson 2018 study, assuming a 5G mobile broadband having 25 million subscribers with 40 unique services launched per year over the period of five years

5) According to May 2019 study by Business Performance Innovation (BPI) Network

6) Based on a survey conducted by Cradlepoint in June 2019

EOS Perspective

While the 5G technology era has arrived, wide-scale commercial deployment is moving slowly amidst challenges it is facing. Cradlepoint study indicated that 46% of the 200 telecom industry professionals surveyed in June 2019 had made little or no preparations for 5G deployment.

4G (introduced in 2009) accounted for 43% of the total mobile subscriptions globally by the end of 2018. Even after a decade, there are still many regions where people do not have access to 4G.

Transitioning from existing communication technologies to 5G is more complex, costly, and time-consuming. Hence, 5G is years away from full-scale commercial deployment. GSMA, an industry association with over 750 telecom operators as members, predicts that while 4G will continue to grow to reach 60% of the global mobile subscriptions in 2025, 5G will account for just 15% of the market by then.

5G has been in the news for some time now and it is marketed as the future of communication and internet technology. 5G has gone through many upgrades and is deemed ready for commercial deployment, at least on a small scale. Many leading telecom operators today are preparing for the rollout of 5G networks while uncovering new challenges in the process.

The road to 5G might be longer than expected, given the challenges on the way. TBR, a technology research firm, expects that only few trailblazers would have attempted to deploy 5G by the end of 2019. Majority of telecom operators will deploy 5G between 2020 and 2026. Laggards will follow them and continue with 5G deployment till 2030.

23/03/2020by EOS Intelligence EOS Intelligence No Comments

Global Economy Bound to Suffer from Coronavirus Fever

Global economy has slowed down in response to coronavirus. Factories in China and many parts of Europe have been forced to halt production temporarily as some of the largest manufacturing hubs in the world battle with the virus. While the heaviest impact of the virus has been (so far) observed in China, global economy too is impacted as most industries’ global supply chains are highly dependent on China for small components and cheaper production rates.

China is considered to be the manufacturing and exporting hub of the world. Lower labor costs and advanced production capabilities make manufacturing in China attractive to international businesses. World Bank estimated China’s GDP in 2018 to be US$13.6 trillion, making it the second largest economy after the USA (US$20.58 trillion). Since 1952, China’s economy has grown 450 fold as compared with the growth rate of the USA economy. International trade and investment have been the primary reason for the economic growth of the country. This shows China’s strong position in the world and indicates that any disturbances in the country’s businesses could have a global effect.

On New Years’ Eve 2019, an outbreak of a virus known as coronavirus (COVID-19) was reported in Wuhan, China to the WHO. Coronavirus is known to cause respiratory illness that ranges from cough and cold to critical infections. As the virus spreads fast and has a relatively high mortality rate, the Chinese government responded by quarantining Wuhan city and its nearby areas on January 23, 2020. However, this did not contain the situation. In January 2020, WHO designated coronavirus a “public health emergency of international concern” (PHEIC), indicating that measures need to be taken to contain the outbreak. On March 11, 2020, WHO called coronavirus a pandemic with the outbreak spreading across about 164 countries, infecting more than 190,000 people and claiming 7,800+ lives (as of March 18, 2020).

Coronavirus threatening businesses in China and beyond

Businesses globally (and especially in China) are feeling the impact of coronavirus. Workers are stuck in their homes due to the outbreak. Factories and work places remain dormant or are running slower than usual. Also, the effects of coronavirus are spreading across the globe. Initially, all factory shutdowns happened in China, however, the ripple effects of the outbreak can now be seen in other parts of the world as well, especially Italy.

Automotive industry

Global automobile manufacturers, such as General Motors, Volkswagen, Toyota, Daimler, Renault, Honda, Hyundai, and Ford Motors, who have invested heavily in China (for instance, Ford Motor joined ventured with China’s state-owned Chongqing Changan Automobile Company, Ltd., one of China’s biggest auto manufacturers) have shut down their factories and production units in the country. According to a London-based global information provider IHS Markit, Chinese auto industry is likely to lose approximately 1.7 million units of production till March 2020, since Wuhan and the rest of Hubei province, where the outbreak originated, account for 9% of total Chinese auto production. While the factories are reopening slowly (at least outside the Wuhan city) and production is expected to ramp up again, it all depends on how well the outbreak is contained. If the situation drags on for few months, the auto manufacturers might face significant losses which in turn may result in limited supply and price hikes.

American, European, and Japanese automobile manufacturers, among others, are heavily dependent on components supplied from China. Low production of car parts and components in China are resulting in supply shortages for the automakers globally. UN estimates that China shipped close to US$35 billion worth of auto parts in 2018. Also, according to the US Commerce Department’s International Trade Administration, about US$20 billion of Chinese parts were exported to the USA alone in 2018. A large percentage of parts are used in assembly lines that are used to build cars while remaining are supplied to retail stores. Supply chain is crucial in a connected global economy.

Coronavirus outbreak poses a risk to the global automotive supply chain.

South Korea’s Hyundai held off operations at its Ulsan complex in Korea due to lack of parts that were supposed to be imported from China. The plant manufactures 1.4 million vehicles annually and the shutdown has cost approximately US$500 million within just five days of shutting down. However, Hyundai is not the only such case. Nissan’s plant in Kyushu, Japan adjusted its production due to shortage of Chinese parts. French automaker Renault also suspended its production at a plant in Busan, South Korea due to similar reasons. Fiat Chrysler predicts the company’s European plant could be at risk of shutting down due to lack of supply of Chinese parts.

However, very recently, automobile factories in China have started reopening as the virus is slowly getting contained in the region. While Volkswagen has slowly started producing in all its locations in China, Nissan has managed to restart three of its five plants in the country.

That being said, auto factories are facing shutdowns across the world as coronavirus becomes a pandemic. Ford Chrysler has temporarily shut down four of its plants in Italy as the country becomes the second largest affected nation after China.

Automobile supply chains are highly integrated and complex, and require significant investments as well as a long term commitment from automobile manufacturers. A sudden shift in suppliers is not easy. The virus is spreading uncontrollably across Europe now and if France and Germany are forced to follow Italy’s footsteps of shutting down factories to contain its spread, this will spell doom for the auto sector as the two countries are home to some of the biggest automobile manufacturers in the world.

Technology industry

China is the largest manufacturer of phones, television sets, and computers. Much of the consumer technologies from smartphones to LED televisions are manufactured in China. One of the important sectors in the technology industry is smartphones.

The outbreak of coronavirus is bad news for the technology sector, especially at the verge of the 5G technology roll-out. Consumers were eagerly waiting for smartphone launches supporting 5G but with the outbreak, the demand for smartphones has seen a decline. According to the China Academy of Information and Communications Technology, overall smartphone shipments in China fell 37% year over year in January 2020.

Foxconn, which is a China-based manufacturing partner of Apple, has iPhone assembling plants in Zhengzhou and Shenzhen. These plants, which make up a large part for the Apple’s global iPhone assembly line, are currently facing a shortage of workers that will ultimately affect the production levels of iPhone in these factories. According to Reuters, only 10% of workers resumed work after the Lunar New Year holiday in China. As per TrendForce, a Taiwanese technology forecasting firm, Apple’s iPhone production is expected to drop by 10% in the first quarter of 2020.

Moreover, Apple closed down all its retail stores and corporate offices in the first week of February 2020 in China in response to the outbreak. On March 13, 2020, it reopened all of its stores in China as the outbreak seems to be under control. However, while Apple seems to recover from the outbreak in China, it is equally affected by store shutdowns in other parts of the world (especially Europe). On March 11, Apple announced that all stores in Italy will be closed until further notice. Italy has been hit by the virus hard after China. The Italian government imposed a nationwide lockdown on the first week of March 2020.

On the other hand other multinational smartphone giants such as LG, Sony Mobile, Oppo, Motorola, Nokia, and many others have delayed their smartphone launches in the first quarter of 2020 due to the outbreak.

The coronavirus outbreak is more likely to be a disaster for smartphone manufacturers relying on China.

Other sectors such as LCD panels for TVs, laptops, and computer monitors are mostly manufactured in China. According to IHS Markit, there are five LCD factories located in the city of Wuhan and the capacity at these factories is likely to be affected due to the quarantine placed by the Chinese government. This is likely to force Chinese manufacturers to raise prices to deal with the shortage.

According to Upload VR, an American virtual reality-focused technology and media company, Facebook has stopped taking new orders for the standalone VR headset and also said the coronavirus will impact production of its Oculus Quest headset.

Shipping industry

In addition to these sectors, the new coronavirus has also hit shipping industry hard. All shipping segments from container lines to oil tanks have been affected by trade restrictions and factory shutdowns in China and other countries. Shipyards have been deserted and vessels are idle awaiting services since the outbreak.

According to a February 2020 survey conducted by Shanghai International Shipping Institute, a Beijing based think-tank, capacity utilization at major Chinese ports has been 20%-50% lower than normal and one-third of the storage facilities were more than 90% full since goods are not moving out. Terminal operations have also been slow since the outbreak in China. The outbreak is costing container shipping lines US$350 million per week, as per Sea-Intelligence, a Danish maritime data specialist.

According to Sea-Intelligence, by February 2020, 21 sailings between China and America and 10 sailings in the Asia-Europe trade loop had been cancelled since the outbreak. In terms of containers, these cancellations encompass 198,500 containers for the China-America route and 151,500 boxes for the Asia-Europe route.

Moreover, shutting down of factories in China has resulted in a manufacturing slowdown, which in turn is expected to impact the Asian shipping markets. European and American trade is also getting affected as the virus spreads to those continents. US retailers depend heavily on imports from China but the outbreak has caused the shipping volumes to diminish over the first quarter.

The USA is already in the middle of a trade war with China that has put a dent in the imports from China. National Retail Federation (world’s largest retail trade association) and Hackett Associates (US based consultancy and research firm) projects imported container volumes at US seaports is likely to be down by 9.5% in March 2020 from 2019. The outbreak is heavily impacting the supply chains globally and if factory shutdowns continue the impact is more likely to be grave.

Read our other Perspectives on US-China tensions: Sino-US Trade War to Cause Ripple Effect of Implications in Auto Industry and Decoding the USA-China 5G War

Other businesses

In addition to the auto, technology, and shipping industries, other sectors are also feeling the heat from the outbreak. Under Armour, an American sports clothing and accessories manufacturer, estimated that its revenues are likely to decline by US$50-60 million in 2020 owing to the outbreak.

Disney’s theme parks in California, Shanghai, Tokyo, and Hong Kong have been shut down due to the outbreak and this is expected to reduce its operating income by more than US$175 million by second quarter 2020.

Further, IMAX, a Canadian film company, has postponed the release of five films in January 2020, due to the outbreak.

Several fast food chains have been temporarily shut down across China and Italy, however, most of them have opened or are in the process of reopening in China as the outbreak is slowly coming under control there. While the global fast food and retail players have limited exposure in China, they are suffering huge losses in Europe, especially Italy. The restaurant sector is severely impacted there, where all restaurants, fast food chains, and bars have been shut down temporarily till April 3 in an attempt to contain the outbreak.

Another significantly affected industry is the American semiconductor industry as it is heavily connected to the Chinese market. Intel’s (a US-based semiconductor company) Chinese customers account for approximately US$20 billion in revenue in 2019. Another American multinational semiconductor and telecommunications equipment company, Qualcomm draws approximately 47% of its revenue from China sales annually. The outbreak is making its way through various industries and global manufacturers could now see how much they have become dependent on China. Although the virus seems to be getting under control as days pass, the businesses are not yet fully operational. Losses could ramp up if the virus is not contained soon.

Housebound consumers dealing with coronavirus

Since the virus outbreak, people across many countries are increasingly housebound. Road traffic in China, Italy, Iran, and other severely affected countries has been minimized and public places have been isolated. People are scared to go out and mostly remain at home. This has led local businesses such as shopping malls, restaurants, cinemas, and department stores to witness a considerable slowdown, while in some countries being forced to shut down.

TV viewing and mobile internet consumption on various apps have increased after the outbreak. According to QuestMobile, a research and consultancy firm, daily time spent with mobile internet rose from 6.1 hours in early January 2020 to 6.8 hours during Lunar New Year (February 2020).

While retail outlets and other businesses are slower, people have turned to ordering products online. JD.com, a Chinese online retailer, reported that its online grocery sales grew 215% (year on year) to 15,000 tons between late January and early February 2020. Further, DingTalk, a communication platform developed by Alibaba in 2014, was recorded as the most downloaded app in China in early February 2020.

EOS Perspective

International businesses depend heavily on Chinese factories to make their products, from auto parts to computer and smartphone accessories. The country has emerged as an important part in the global supply chain, manufacturing components required by companies globally. The coronavirus outbreak has shaken the Chinese economy and global supply chains, which in turn has hurt the global economy, the extent of which is to be seen in the months to come. Oxford Economics, a global forecasting and analysis firm, projected China’s economic growth to slip down to 5.6% in 2020 from 6.1% in 2019, which might in turn reduce the global economic growth by 0.2% to an annual rate of 2.3%.

A similar kind of outbreak was seen in China in late 2002 and 2003, with SARS (Severe Acute Respiratory Syndrome) virus. China was just coming out of recession in 2003 and joined the World Trade Organization, attaining entrance to global markets with its low cost labor and production of cheaper goods. The Chinese market was at its infancy at that time. As per 2004 estimates by economists Jong-Wha Lee and Warwick J. McKibbin, SARS had cost the global economy a total of about US$40 billion. After SARS, China suffered several months of economic retrenchment.

The impact of coronavirus on Chinese as well as global economy seems to be much higher than the impact of SARS, since COVID-19 has spread globally, while China has also grown to be the hub for manufacturing parts for almost every industry since the SARS outbreak. In 2003, China accounted for only 4% of the global GDP, whereas in 2020, its share in the global GDP is close to 17%.

Currently, the key challenge for businesses would be to deal with and recover from the outbreak. On the one hand, they need to protect their workers safety and abide by their respective governments’ regulations, and on other hand they need to safeguard their operations under a strained supply chain and shrunken demand.

In the current landscape, many businesses in China have reopened operations but the outbreak is rapidly spreading to other parts of the world (especially Europe and the USA), where it is impacting several business as well as everyday lives. The best thing for manufacturing companies in this scenario is to re-evaluate their inventory levels vs revised demand levels (which may differ from industry to industry), and consider a short-term re-strategizing of their global supply chains to ensure that raw materials/components or their alternates are available and accessible – bearing in mind their existing production capability with less workers and customer needs during this pandemic period.

With the rapid spread of the virus, it seems that the outbreak is likely to cause considerable damage to the global economy (both in terms of production levels as well as psychological reaction on stock markets), at least in the short term, i.e. next 6 months. However, many experts believe that the situation should soon start coming under control at a global level. For instance, some experts at Goldman Sachs, one of the world’s largest financial services companies, believe that while this pandemic will bring the lowest growth rate of the global GDP in the last 30 years (expected at 2% in 2020), it does not pose any systematic risks to the world’s financial system (as was the case during the 2008 economic crisis).

Having said that, it is difficult to estimate what real impact the coronavirus will have on the global economy yet, and if opinions such as Goldman Sachs’ are just a way to downplay the situation to keep the investors calm. It is more likely to depend on how long the virus continues to spread and linger and how effectively do governments around the world are able to contain it.

30/01/2020by EOS Intelligence EOS Intelligence No Comments

Media Players Push the Envelope to Sway in on Streaming Arena

The emergence of online entertainment has led to consumers transitioning from a fixed time-based entertainment on TV to on-demand watching across a wide array of devices. Continuously shifting viewing preferences will further expand digital mode of entertainment thus intensifying the competition between online streaming services and other entertainment providers. This will likely set the tone of how traditional entertainment players refurbish their business objectives and modify their operational models to acquire and retain consumers in the times ahead.

Online video streaming soars, both in subscribers and revenue

In early 2000’s if one wished to watch a movie at home, it meant day(s) of wait before the DVD arrived at the doorstep via mail. However, in 2007, when Netflix launched its online video streaming service, it started a new wave in the entertainment world – the ability to enjoy your favorite movie at the click of a button without having to wait for it to be delivered. This marriage of content and digital technology gave consumers an exciting experience of viewing content in a new way. Since then, video streaming has come a long way and now is a multi-billion dollar industry. In 2018, the video streaming industry was valued at US$ 36.64 billion and is expected to grow at a CAGR of 19.6% between 2019 and 2025, reaching a value of US$ 124.57 billion by 2025.

A surge in the number of devices supporting digital media, increasing internet speed, and the ease to access content (be it information, entertainment, or social) anytime, anywhere is driving the growth of online content.

As the demand for digital on-demand content is growing, consumers are spending more on subscription video on demand (SVOD) such as Netflix and Amazon Prime, making it the most commonly used video service in the over-the-top (OTT) content (content delivered via internet) market – in 2018, of the total global OTT revenue of US$ 67.8 billion, SVOD generated nearly 53% of the revenue standing at US$ 36 billion. SVOD revenue is estimated to reach US$ 87 billion by 2024.

According to global information provider, IHS Markit, the number of global subscribers to online video services such as Netflix and Amazon Prime increased by 27% in 2018 and reached 613.3 million subscribers, an increase of 131.2 million in comparison to 2017. The top three online streaming players account for 45% of this share – Netflix with 155 million subscribers (148 million paid users, with another 7 million using trial accounts), Amazon Prime with 100 million subscribers, and Hulu with 28 million subscribers (26.8 million paid users, with an additional 1.3 million using promotional accounts), totaling to 283 million subscribers.

Cable TV bearing the brunt

Online video subscriptions (613.3 million) surpassed cable subscriptions (that stood at 556 million, a 2% decrease from 567 million in 2017) for the first time in 2018. However, the online subscription video platforms generated nearly three times less revenue than cable TV, mainly due to low subscription rates. These affordable rates coupled with the flexibility to watch any program at any convenient time has resulted in a drop in the viewership of the television network.

Cable and satellite providers, to some extent, are taking a beating from online streaming as consumers are abandoning traditional cable for streaming services. In the USA, consumers spend US$ 23.3 billion annually on home entertainment, of this 75% (US$ 17.5 billion) is spent on digital entertainment, which depicts the fact that people are spending more on online subscriptions than on the cable TV. This implies that consumers prefer viewing content online than on cable TV, which is further reinforced by the low subscription rates for online services. As a consequence, in 2018, two of the largest direct broadcast satellite service providers in the USA, AT&T-owned DirecTV and Dish Network Corporation’s DishTV, reported losing 1.24 million and 1.13 million subscribers, respectively.

Consumers prefer viewing content online than on cable TV, which is further reinforced by the low subscription rates for online services.

While both players lost a huge number of viewers of the cable television services, during the same year, they were also the largest aggregators through their streaming cable services, namely, DirectTV Now (owned by AT&T) and Sling TV (owned by Dish), which added 436,000 and 205,000 new subscribers each. This shift denotes a change in the way people consume content, choosing a plan that is cable-like but shifting to streaming services at low price point making budgetary cuts while still enjoying favorite programs.

For providers that offer both pay-tv and online subscription as part of their service portfolio, staying afloat in this competitive arena is easier since consumers can shift from one package to another (according to changes in their financial capabilities) and the company does not end up losing customers.

However, for traditional cable companies, the situation is more difficult than expected. In 2018, the top six cable companies in the USA (Comcast, Charter, Cox, Altice, Mediacom, and Cable One) lost a combined 910,000 TV subscribers in comparison to 660,000 subscribers lost in 2017 (38% more in a year). Large cable telecommunications companies such as Comcast and Charter are still in a better position to deal with the situation owing to various business verticals and strong financial records. It is the small players operating in limited territories who are in a muddle – they need to look for alternative ways (other than offering cable TV services, subscribers for which are drastically reducing) to keep their businesses afloat.

Other than losing customers, they are also challenged by the increasing negotiations with programmers (for distributing content via cable) who now have the alternative to broadcast their content via online partners, eliminating the need of cable middleman.

However, unlike in the USA, where the online streaming market is pretty much advanced, in other less developed parts of the world, the development of online streaming platforms is still in its infancy. In the immediate future, it is expected that the streaming services will not be able to cause major impact on traditional video platforms in these geographies, as the adoption of video streaming will be restricted mainly by slow internet connectivity, unlike in the USA, where 5G services are on the brink of being launched.

Constantly evolving entertainment landscape, not without challenges

Online streaming is disrupting the traditional mode of video entertainment challenging the domination of TV as the main entertainment hub. Ascent of digital media players such as Netflix, Amazon, or YouTube, is posing major challenges for other players such as content production studios, cable companies, and media networks thus compelling them to develop new business models and adapt to compete with online streaming players.

To catch up with the changing dynamics of the industry, players from all verticals (including media houses, internet providers, telecom companies, distributors, etc.) in the entertainment industry are revising their business choices and strategically launching new product and services.

Media companies are reformulating their business models by including exclusive streaming services into their overall product and service portfolio. For instance, Disney, US-based mass media and entertainment company, is planning to launch its suite of direct-to-consumer (DTC) services in 2019 starting with Disney+ (to be launched in the USA in November, 2019, followed by launch in Asia and Europe in 2020 and 2021, respectively) focusing on delivering original productions, with all content available for offline viewing. It is estimated that Disney+ is likely to attract up to 90 million subscribers by 2024, nearly more than two times of what Netflix accomplished in five years.

In another example, Comcast-owned mass media house, NBCUniversal, announced the launch of its ad-supported streaming service in April 2020. The service will be free if viewers watch TV through a paid provider with NBCU access (including Comcast and Sky) but one can opt for subscription service to eliminate ads. To start with, the service will focus on licensed content with some original programming.

Recently acquired Time Warner, now named WarnerMedia (acquired by AT&T), also plans to launch its streaming service by the end of 2019 with three tiers of options – an entry-level package focused on movies, premium service with original programming and blockbuster movies, and third option that offers content from the first two packages plus an extensive library of WarnerMedia and licensed content.

With more and more players venturing into the streaming territory and offering new and fresh content, the competition is only going to get harder for Netflix and the likes of it. Players who lack in offering content volume-wise, even though successful in launching their streaming services, will find it difficult to survive, in the medium term, especially when offering premium subscriptions.

Players who lack in offering content volume-wise, even though successful in launching their streaming services, will find it difficult to survive, especially when offering premium subscriptions.

Other than media companies, pure-play cable operators are also feeling the heat of the ever-changing entertainment landscape. As the majority of viewers receiving at-home-video services through means other than traditional cable subscription increases, cable TV players are left with no choice but to look for alternative ways to engage with the market. Increasing demand for broadband services is a saving grace for cable operators in this situation. For example, cable provider, Comcast, is becoming more broadband-centric than cable-centric and shifting its focus to high-speed internet services since customers have started dumping high-priced TV services for cheaper streaming services. The company, in March 2019, launched a streaming platform, Xfinity Flex, targeted at broadband internet services customers (who do not use the company’s cable services). The service offers customers set-top streaming box that includes Netflix, Prime Video, HBO, and other apps, and voice control to manage all of the connected devices in their homes.

However, for cable operators, the situation will only worsen in the future. High-speed internet access market, currently dominated by cable operators, will soon be challenged by the rollout of 5G wireless technology by telecom companies such as Verizon, AT&T, T-Mobile, and Sprint, among others. The implementation of 5G services will be a whole new ballgame, highly likely to transform the online viewing experience, and it will be interesting to see how exactly this space will be changed.

New entrants challenging the players

If the TV content and service providers were already not in deep waters due to the rise of online streaming, entry of retail and media players into the entertainment sector has not made the situation any better. Though these entrants are most likely going to be a direct competition for the video streaming players rather than the traditional ones, it cannot be denied that this may be a potential threat to the entire entertainment industry.

In May 2019, retail chain, Walmart, that bought Vudu, content delivery and media technology company in 2010, launched a video service offering more than 8,000 movies and TV shows for viewers to watch for free (with ads), as well as a library of more than 150,000 movies and TV titles that people can purchase or rent. The company dropped its initial plans to launch Vudu as a streaming service (competing with Netflix) citing huge investment requirement and lack of experience in producing original content as the reasons. However, the idea was not off the table for too long, as the company announced a list of original content programs including reviving an old movie to be delivered in 11-minute installments, a travel show, an entertainment series, and a crime thriller. Vudu is currently focused on developing content that costs much less than other top video streaming service providers spend on original content, which costs them billions of dollars; the future vision takes the path of reaching the front of the pack slowly and steadily.

In another example from 2018, Snapchat, a multimedia messaging app, launched Snap Originals, offering premium content (with episodes lasting for about five minutes) created exclusively for Snapchat’s users to be viewed on their mobiles. The content includes a range of genres including drama, comedy, documentary, etc., and is developed in partnership with film and television writers and producers.

EOS Perspective

The amount of money viewers spent globally on entertainment reached US$ 55.7 million in 2018, an increase of approximately 16% in comparison to 2017 (US$ 48.1 million). Between 2014 and 2018, consumers’ entertainment spending increased nearly 1.5 times driven by increased expenditure on digital entertainment (including electronic sell-through, video-on-demand, and paid subscriptions). The digital entertainment spending in 2018 was US$ 42.6 million in comparison to US$ 15.7 million in 2014, an increase of 171%, exhibiting a giant move towards digital viewing.

There has been a plethora of cases where TV players have either launched new ideas and concepts or joined hands with other players (in the same realm or similar playfield) to have a foothold in the otherwise challenging entertainment industry. With more and more options congesting the already tight, but diverse streaming video topography, it is most likely going to present increasing competition for traditional television. This, topped with dropping numbers of television viewers globally, only adds to the inevitable nostalgic observation that television may become obsolete, if not dead, in the next five to six decades.

Developing content and building own platforms for streaming videos does not come cheap – players will have to invest billions of dollars in developing content whilst losing revenue by not selling distribution rights to third-party networks and distributors. This stands true for content creators such as Disney and WarnerMedia, who are likely to gradually withdraw their content from online streaming platforms to be broadcasted on their own networks. For instance, Disney will bear an estimated loss of US$ 300 million in annual revenues it currently gets from Netflix for pay-tv rights to its theatrical releases. Thus, it is clear that shifting to a newer streaming business model will not only be costlier but also riskier since it would be difficult to ascertain beforehand how well the content will be accepted by the viewers. Nonetheless, in the current scenario, where there is always demand for more content, players hardly have any other alternative to explore.

The outlook for video entertainment, in the short to medium term, looks promising with coalition among various operators’ in reshaping the video media scene. It can be expected that potential partnerships, particularly among content creators and service (internet and mobile network) providers, if done right, could be a tough nut to crack for pure-play online streaming operators.

Potential partnerships, particularly among content creators and service (internet and mobile network) providers, if done right, could be a tough nut to crack for pure-play online streaming operators.

Nevertheless, given the low-price point and round the clock content availability, it can be anticipated that online streaming business will continue to see significant growth in the years to come. For other players, it is important to understand that while their direct audience is shifting, it is not vanishing – just that viewers are watching the content via different modes. Thus, in the long haul, it will be necessary for players to offer a combination of traditional TV packages along with online streaming plans and become a one-stop-shop for content to retain old customers and signing up new subscribers. However, for the businesses, the challenge lies in knowing what offerings to create and whom to partner with, all while retaining customers and generating revenue in the constantly evolving entertainment topography.

Looking at the current scenario, it is apparent that digital platform players will further continue to disrupt (and redefine) the TV and video market in the future. To survive, industry-wide alliances in the form of joint production, partnerships, and mergers are an obvious choice to make. However, in their desperate attempt to stay ahead, it can be expected that companies will try to come up with innovative solutions, something that is neither exactly a cable TV offering nor a video that can be streamed online, but an experience that enthralls the viewers and keeps them hooked to the device of their choice.

14/11/2019by EOS Intelligence EOS Intelligence No Comments

Blockchain Likely to Make a Safe Landing in Aviation Sector

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Blockchain technology has captured the interest of several industries and aviation is no exception. Its decentralized, secure, and immutable nature makes blockchain technology ideal for many operational aspects and verticals within the aviation industry. In fact, most of the blockchain-based solutions in the aviation sector extend beyond basic financial transactions and range across security and identity management, ticketing, maintenance, baggage management, and loyalty programs. Various stakeholders in the aviation industry, including airlines, airports, aircraft manufacturers and maintenance providers, and airspace technology providers, etc., are partnering together to explore and develop blockchain-based capabilities across the industry’s value chain.

Blockchain technology is fast emerging as the revolutionary technology in the aviation industry with most airline and airport CIOs investing huge resources and effort in exploring this space. As per Air Transport IT Insights 2018 report by SITA, one of the world’s leading air transport communications and information technology company, about 60% airlines have invested in blockchain-based pilot projects or research programs for implementation by 2021. This shows an increase from 2017, when only 42% airlines invested in blockchain-based research programs. Moreover, airports are also exploring this technology, with 34% airports planning blockchain-based R&D projects by 2021.

Owing to its decentralized, scalable, transparent, and secure nature, blockchain technology’s capabilities align well with the needs of the aviation sector, especially in the fields of ticketing, maintenance, luggage tracking, loyalty programs, and identity management.

Blockchain to streamline security and identity management

Passenger identity management is one of the most sought-after uses of blockchain in aviation. As per the SITA study, about 40% airlines and 36% airports claim passenger identity management to be one of the most prominent areas of application and benefit of blockchain technology.

Blockchain technology has the ability to streamline the identity management of passengers through the combined use of blockchain, biometrics, and mobile (or wearable devices). Currently, a passenger needs to pass several checkpoints where different parties (airport staff, airlines, control authorities, etc.) verify their physical IDs. This process is cumbersome, time consuming, and also vulnerable to human errors. Moreover, it results in a great amount of duplication of data as each stakeholder stores and verifies passenger information at their own level.

Blockchain, owing to its immutable, decentralized, and secure nature, helps solve these issues by validating identities using biometrics. Blockchain with security wrappers ensures that the information stored in the system is protected and helps share it with all the stakeholders through the use of authorized access protocols. Thus, blockchain and biometric-based ID management help eliminate the need for paper documentation (such as passport and visa) across the entire journey. This will facilitate a smoother and quicker travel experience for the passenger, as compared with the current verification and multiple checkpoints. Moreover, it will reduce security lapses as the need for paper documents (that can be forged) and human intervention is low.

Blockchain start-up Sho Card, which provides digital identification cards through blockchain, has partnered with SITA to develop a digital identity card as a proof of concept, wherein the traveler obtains a single travel token for his journey.

Under this concept, the traveler undergoes an initial check at the travel counter, where he is positively identified using biometrics and issued a travel token. A photo of the traveler is also taken for verification. This information (biometric ID information, travel token, photo) is stored on the travelers mobile or wearable device and replaces the requirement of any physical/paper identification. When the traveler approaches any gate or checkpoint, he presents the travel token via a QR code on the SITA traveler app. The agent at the checkpoint scans the QR code and validates the travel token and the individual matches to that in the photo. The traveler is allowed to pass if the information matches. This significantly reduces costs and time taken at several checkpoints for document validation. Moreover it reduces the human liability around documents check.

Other blockchain players, such as UK-based ObjectTech and VChain Technology, have also entered into agreements with Dubai’s Immigration and Visa Department and International Airlines Group (AIG), respectively, to provide blockchain-based solutions to streamline passenger data management for the aviation sector.

Blockchain and biometric-based ID management help eliminate the need for paper documentation (such as passport and visa) across the entire journey. This will facilitate a smoother and quicker travel experience for the passenger, as compared with the current verification and multiple checkpoints.

Smart contracts to ease out ticketing

Airlines currently sell paper-based or electronic tickets through their centralized ticketing system. For each booking, there are multiple touchpoints, which include airlines, travel agencies (online and offline), banks and card providers, and government agencies. Upon the sale of a ticket, each party stores passenger data at their individual level, which makes the process complex and vulnerable to errors. In addition, ticketing information being currently stored in a centralized database by airlines and airports makes it vulnerable to hacks and glitches, which in turn can result in reputation and revenue loss for the airlines or airport. This was seen in case of Southwest Airlines in July 2016, when the centralized ticketing database failed, resulting in the cancellation of about 2,000 flights and a revenue loss of US$82 million.

The use of blockchain-based smart contracts helps eliminate the need for paper tickets and e-tickets can be tokenized. Tokenized tickets can have their own set of embedded business logic and terms and conditions associated with how they are sold and used including pricing and timings for the flights. Moreover, further stipulations can be added to the ticket such as the class of the ticket, lounge access, etc. The decentralized nature of blockchain insulates it from hacking and system failures and also mitigates data sharing errors. Furthermore, it allows for the sale of tickets in real-time from different partners across the globe. It also improves customer experience and cost effectiveness of service by automating time consuming tasks, streamlining payment process, and reducing settlement times.

The use of blockchain-based smart contracts helps eliminate the need for paper tickets and e-tickets can be tokenized. Tokenized tickets can have their own set of business logic and terms and conditions associated with how they are sold and used including pricing and timings for the flights.

In July 2018, Russia’s second largest airline, S7 Airlines partnered with Russian commercial Bank, Alfa Bank, to build and sell its airline tickets over an ethereum-based private blockchain platform. The use of blockchain enabled the airlines to securely connect its online booking system with the bank’s payment processing systems, thereby speeding the payment processing time (from about two weeks to less than a minute) and reducing manual paperwork. In July 2019, the airline’s blockchain-based ticketing platform witnessed sales of US$1 million, indicating the success of the venture.

Blockchain to enable luggage tracking

One of the areas where airlines are constantly working on improving customer service and reducing costs is cargo and passenger baggage management. A passenger’s baggage passes through several automated and manual processes before being handed back to them and data about the cargo/luggage’s journey is usually stored in a non-standardized form on an individual level by multiple players that handle the cargo/luggage, including airlines personnel, transportation companies, airports, and local authorities.

This process results in passenger luggage being often lost or misdirected, a fact that impacts the airlines both in terms of reputation and cost. As per SITA’s Baggage Report 2018, this translated into additional costs of about US$2.3 billion for airlines in 2017.

Blockchain, which functions as an online record-keeping system maintained on a peer-to-peer network rather than a central agency or authority, can help airlines tackle the issues of lost luggage. Using blockchain, customers (and airlines) can track the luggage throughout its transfer process, which provides full transparency to the process. Thus if a bag is misplaced, the airlines can track back the entire journey of the lost luggage to identify the point where it went missing and why.

In November 2017, Air New Zealand partnered with Swiss-based start-up Winding Tree (which is a blockchain-based distribution platform for the travel industry), to explore applications based on blockchain technology that could help the carrier improve the efficiency and security of booking and baggage tracking services. The potential applications that Air New Zealand is looking to explore include cargo and baggage tracking, retail distribution, and loyalty program opportunities.

Another use of blockchain in baggage management is in determining lost baggage compensation. Through the use of smart contracts, airlines could automate insurance claims for lost baggage and instantaneously compensate customers. Rega, a blockchain insurance platform, has been deploying blockchain to create a “crowd-insurance” platform in which the risk of lost luggage is shared across the community. This works primarily as a peer-to-peer insurance that uses smart contracts and smart tokens to insure baggage for a group of passengers without the need for any insurance companies, agents, or intermediaries. Through this method, it has managed to reduce lost baggage premium to about US$12 annually for a coverage of up to US$5,000.

Blockchain to better manage maintenance history and spare parts sourcing

Flight maintenance is one of the largest cost-heads for an airline. As per IATA, in 2017, airlines globally spent US$76 billion on MRO (maintenance, repair, and overhaul), representing about 11% of total operational costs.

Currently, the MRO process is extremely complex, with the value chain encompassing multiple players such as manufacturers, component traders, airlines, service providers, and regulatory authorities. Moreover, each of these bodies store information in separate databases or physical ledgers. This makes obtaining information about components and maintenance extremely challenging and time consuming. Moreover, it can lead to data discrepancy (as it is stored at individual levels by the various parties), which in turn questions the reliability of this data and the safety of the component. In these cases, the worthiness of the component is established through an expensive and time consuming investigation, testing, and recertification process.

Blockchain’s decentralized, immutable, and transparent nature, makes it ideal for managing MRO records for airlines. Blockchain digitally logs and stores data regarding aircraft spare parts and maintenance, from the time the part is manufactured, to when it is installed, to every time maintenance or repair occurs. This decentralized, transparent, and real-time storage of data ensures that the information is available to all authorized parties (from airlines to MRO service providers) in a prompt and accurate manner, thereby saving on time and costs while achieving better safety and maintenance standards.

Blockchain’s decentralized, immutable, and transparent nature, makes it ideal for managing MRO records for airlines.

In addition, the use of blockchain enables airlines to engage in more predictive maintenance, by enabling technicians to review the complete configuration and history of the various components in the aircraft on a blockchain-based ledger. This helps them tackle issues in a preventive manner rather than taking action after a problem has occurred. Similarly, MRO providers can also use blockchain to offer predictive maintenance services to airlines, saving money for both themselves and the airlines.

Blockchain also helps in sourcing spare parts and removing middle men in the sourcing process. Currently, aircraft components are sourced from vendors or traders in a marketplace, who then further scout for the component with manufacturers or sometimes other traders/resellers. This process is expensive (due to multiple mark-ups) and time consuming and most of all, lacks transparency. To tackle this, various manufacturers, airlines, and MROs can create a blockchain-powered aerospace marketplace, where the buyers can share the serial number of the product needed, which in turn can be matched to the real-time ownership and location of the seller currently holding the product. This would eliminate the need for middle men in the industry and also save time and reduce costs especially in case of scarce parts.

In October 2017, Air France-KLM announced its plans to evaluate and develop a blockchain-based system to manage replacement parts on in-service airplanes and improve aircraft maintenance procedures and record keeping. Similarly, in August 2018, Russian airlines, S7, in association with Russian energy player, Gazprom Neft, announced the successful development and implementation of a blockchain-based system to refuel aircraft using smart contracts. The smart contracts will remove the need for pre-payment, bank guarantees, and will further insulate the parties from any unforeseen financial risks involved in the refueling process. This is expected to help reduce cost and also save time both for the airlines as well as their energy partner.

Blockchain to add value to airlines loyalty programs

Flyer loyalty programs, better known as frequent flyer miles, are an integral part of an airline’s customer engagement program. All airlines run a loyalty program, whether individually or as an alliance. However, in traditional loyalty programs travelers need to wait to accrue a certain amount of points to utilize them, with limitations on where and when they can use them. Loyalty programs for alliances have an even more complex structure when compared with stand-alone loyalty programs. This results in limited incentive for travelers to remain loyal to a certain airline(s), thereby defeating the purpose of frequent flyer programs.

Blockchain has the ability to streamline the frequent flyer programs, especially for alliances. By tokenizing loyalty points on the blockchain, travelers can obtain instant value for the points by redeeming them in real-time and across a great number of partnering merchants. Thus with points being accepted as a form of “currency” across a pool of merchants, travelers can use these points in a faster and more efficient manner, thereby remaining motivated to maintain loyalty with a particular airline(s).

In July 2018, Singapore Airlines was the first airline globally to launch a blockchain-based loyalty program for frequent flyers. Under this program, Singapore Airline members can convert their miles into units of payments which are stored in a digital wallet, called KrisPay. This digital wallet was developed by Singapore Airlines in partnership with KPMG and Microsoft. The airline has partnered with 18 merchants across Singapore (including eateries, gas stations, beauty parlors, etc.) where customers can use KrisPay units.

Blockchain initiatives

Considering the various applications of blockchain across the aviation sector, a great number of airlines and airspace technology providers are investing heavily to explore this space and develop blockchain-based solutions for various verticals.

In July 2018, Lufthansa airlines partnered with SAP to launch a global Aviation Blockchain Challenge in order to support blockchain R&D in the sector. Through this venture, the two companies are seeking ideas from entrepreneurs and blockchain start-ups with regards to enhancing passenger experience, improving airline operations, processes, and maintenance, and streamlining the aviation supply chain.

Similarly in July 2018, SITA, which is the air transport industry’s largest technology provider and is jointly owned by a large number of airlines, launched the Aviation Blockchain Sandbox project. Through the Sandbox project, the technology provider aims to achieve intra-industry collaboration to understand and explore the applications of blockchain in the aviation space and undertake cross-industry initiatives. This platform gives access to smart contracts known as FlightChain, which will help improve flight status data problem for airlines and airports by storing all flight information on the blockchain to provide consistent data across the network.

EOS Perspective

Blockchain technology has taken several industries by storm, and shows great potential in several others (read our previous publications: Blockchain Technology – Next Frontier in Healthcare?, Blockchain Paving Its Way into Retail Industry, and Blockchain: A Potential Disruptor in Car Rental and Leasing Industry to find out more). Aviation seems to be no exception. Although application of blockchain in the aviation industry still seems to be largely at the exploration stage (with most companies running proof of concepts and investing in testing phases), it definitely holds the potential to transform the way air travel is currently done.

***Explore our other Perspectives on* *blockchain***

That being said, blockchain cannot be seen as a universal remedy for all the issues faced by the aviation sector. To ensure that blockchain is used in the most efficient and cost effective manner, it is critical for players to have a solution-oriented approach when exploring blockchain-based applications, i.e. starting with a specific problem and working towards developing solutions, rather than making blockchain a solution and looking for problems to solve with it. With blockchain becoming the buzz word across the board, it is very common for companies to get carried away with the technology trying to fit in places, where its needs or costs are not justified. Considering that the technology is relatively new and has limited scalability at the moment, a lot of blockchain-solutions that may work well in theory may not be practical in today’s day and may need to wait for the blockchain technology to evolve further.

Moreover, for blockchain to be successfully applied across the industry, it is very important for the stakeholders to collaborate to develop blockchain solutions with regards to sharing data, technology, and costs related to R&D. This is also somewhat of a challenge as adoption of blockchain requires transparency and most companies are wary of sharing their data and information with external players.

Despite these challenges, the adoption of blockchain technology by the aviation sector seems more like a matter of “when”, rather than “if”. Most players in the aviation sector have been operating through traditional business practices for several decades now and may take time to embrace blockchain in mainstream operations. However, several players such as Lufthansa and Air France-KLM have started leading the way. With promises of cost savings and better services, it is to be seen if blockchain can enjoy a smooth landing in the aviation sector.

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Government action or lack thereof

Nigeria’s energy poverty affecting businesses across industries and sizes

Manufacturing and trading industry

Technology sector

Other sectors

The road ahead

In 2017, the Nigerian government developed a National Renewable Energy and Energy Efficiency Plan, under which it aims to achieve 30,000 MW electricity by 2030, with renewable energy accounting for 30% of the overall energy mix (9,000 MW).

EOS Perspective

Outbreak tracking

Donations

Supply chain tracking

Avoiding future pandemics

EOS Perspective

State of eVTOL development

Capital investments

EOS Perspective

…on opportunities in UAM Space

…on Uber’s plans to commercialize air taxis

Read our other articles on blockchain where we talk about the technology gaining prominence in several industries, including healthcare, retail, banking, car rental, and aviation.

Data breach/security

With schools and universities storing data digitally on blockchain, they would be able to store and share student data without making it accessible to hackers.

Data access and verification

With certifications being stored on a blockchain, students can obtain fast and easy access to their records and can share them with potential employers without the latter being concerned about their authenticity.

Copyright and plagiarism

Creation of decentralized education marketplaces

Other solutions

EOS Perspective

Developing 5G infrastructure is a costly affair

Despite the hype, demand for 5G is currently rather moderate

Net neutrality law dampens motivation to invest in 5G

5G to multiply data privacy and security risks

Explore our other Perspectives on 5G

5G draws criticism over possible health concerns

1) According to McKinsey estimates (February 2018) based on the assumption that three players share the 5G network

2) Based on survey of 1,000 home and mobile internet users in the USA conducted in September 2018 by PWC

3) Based on survey of 800 home and mobile internet users in the USA conducted in May 2019 by PWC

4) As per Ericsson 2018 study, assuming a 5G mobile broadband having 25 million subscribers with 40 unique services launched per year over the period of five years

5) According to May 2019 study by Business Performance Innovation (BPI) Network

6) Based on a survey conducted by Cradlepoint in June 2019

EOS Perspective

Coronavirus threatening businesses in China and beyond

Automotive industry

Coronavirus outbreak poses a risk to the global automotive supply chain.

Technology industry

The coronavirus outbreak is more likely to be a disaster for smartphone manufacturers relying on China.

Shipping industry

Other businesses

Housebound consumers dealing with coronavirus

EOS Perspective

Online video streaming soars, both in subscribers and revenue

Cable TV bearing the brunt

Consumers prefer viewing content online than on cable TV, which is further reinforced by the low subscription rates for online services.

Constantly evolving entertainment landscape, not without challenges

Players who lack in offering content volume-wise, even though successful in launching their streaming services, will find it difficult to survive, especially when offering premium subscriptions.

New entrants challenging the players

EOS Perspective

Potential partnerships, particularly among content creators and service (internet and mobile network) providers, if done right, could be a tough nut to crack for pure-play online streaming operators.

Blockchain to streamline security and identity management

Blockchain and biometric-based ID management help eliminate the need for paper documentation (such as passport and visa) across the entire journey. This will facilitate a smoother and quicker travel experience for the passenger, as compared with the current verification and multiple checkpoints.

Smart contracts to ease out ticketing

The use of blockchain-based smart contracts helps eliminate the need for paper tickets and e-tickets can be tokenized. Tokenized tickets can have their own set of business logic and terms and conditions associated with how they are sold and used including pricing and timings for the flights.

Blockchain to enable luggage tracking

Blockchain to better manage maintenance history and spare parts sourcing

Blockchain’s decentralized, immutable, and transparent nature, makes it ideal for managing MRO records for airlines.

Blockchain to add value to airlines loyalty programs

Blockchain initiatives

EOS Perspective

Explore our other Perspectives on blockchain

***Explore our other Perspectives on* *blockchain***