re·in·vent \ˌrē-ən-ˈvent\ vb : to make major changes or improvements to (something); to present (something) in a different or new way
The telecommunications market is facing disruption from all directions as the traditional roles of the communications, broadcast and IT industries converge. This convergence is enabling new services and business models, but also a reinvention of the telco into a new type of communication service provider (CSP) that is decidedly different to the traditional model. This new CSP is also a full-service IT provider – in which traditional telco services run over the data network with an increased focus on business-to-business services.
The need for this new type of CSP is being driven by the unprecedented challenges facing telecommunications operators as the proliferation and penetration of connected devices surge and the consumption models change. This is forcing rapid and dynamic transformation in how CSPs operate and deploy their networks, with analytics providing a wealth of information on user behavior that can help shape investment plans.
One example of unexpected change is the rapid increase in data traffic on wireless networks that were designed for modest and predictable increases in voice traffic – not streaming video and data-intensive social media.
According to the latest Cisco Visual Networking Index forecast – video traffic is expected to grow by more than 300 percent from 2014-2019. However, growth on the mobile network will be even more dramatic – with a predicted increase of more than 1200 percent during the same period.
The evolution of the new CSP is being driven by a number of transformative triggers. These triggers are internal and external as well as strategic and operational.
New market entrants and technology evolution are the most impactful on the industry. From a historical perspective, we can look back at a number of new market entrants that were considered disruptive to the telecommunications industry. These include Vonage and Skype – who forever changed the voice model; Netflix, Hulu and other over-the-top (OTT) video streaming services – which completely changed the dynamics of video consumption; and all social media sites which have had tremendous impact on how consumers share information and the type of information they share as well as customer care.
From a competitive operator perspective, Free in France, Fastweb in Italy, Google Fiber in the US, TalkTalk in the UK, and SoftBank in Japan are only a handful of examples of disruptors that forced change in pricing models, service offerings and even the infrastructure plans of incumbent operators.
From a technology perspective, the most dramatic and impactful changes have emerged in the mobile space, including its entire supporting ecosystem.
So how do operators remain relevant amid all this change? The first step is the transition of the role of chief technology officer into the chief transformation officer. This person (or persons) will oversee the transformation of every aspect of the business process, from selling, marketing, communicating, collaborating and innovating. Furthermore, the CTO’s role will shift from aligning technology to applying technology to accelerating business strategy; from communicating technology plans to integrating a transformation imperative and applying the process across the company.
We see three key areas of transformation – network, business and services. In fact, this is a wholesale reset of both their operating and business models – which includes the organization, the infrastructure and the operations.
Network transformation is well underway as operators transition their networks to all-IP. The goal of these new networks is for faster introduction of new services; to operate at reduced costs while increasing efficiencies, and providing customers with control, choice and flexibility in their services.
Although operators have been transitioning parts of their networks towards IP over the last decade – the approach has been fragmented – resulting in both high capital and operating costs with significant redundancies and inefficiencies.
Enter network functions virtualization (NFV), software-defined networking (SDN) and cloud computing.
Most networks are populated with a variety of proprietary hardware which is often not suitable for supporting new services. It’s also often difficult and costly to maintain and its lifecycle continues to shorten as technology innovation accelerates – making it difficult to justify the investment. Furthermore, these networks actually inhibit the ability to offer new revenue-generating services.
NFV decouples network services from the hardware that delivers them. As a result, many network functions can be delivered in software and deployed on general purpose appliances. Essentially, NFV enables CSPs to reset the cost base of their network operations and create the flexible service-delivery environments that enable them to accelerate the introduction of new services quickly and cost-effectively.
The NFV architecture enables network functions to be dynamically defined, deployed and reassigned to match and organizations scale, performance and capabilities requirements. The three main components include virtualized network functions (VNFs); NFV infrastructure (NFVI) and NFV management and orchestration, with each containing a number of different NFV technologies.
The real challenge for operators is deciding what to virtualize first. Functions that require heavy CPU processing, but are not bandwidth intensive, are good candidates. So are any functions that run in Layers 4 to 7.
Nearly every operator is in the process of evaluating their network for virtualization. AT&T stated its plans to virtualize 75 percent of its network by 2020 at the end of last year and so far it has already virtualized and put into production critical network functions such as domain name service (DNS), network analytics, intelligent data platform, and virtualized provider edge router. This has improved their cycle time, elasticity, and operational efficiency, allowing them to launch new and innovative services.
Although NFV remains in the early stages of implementation, it is already proving to be a valuable and necessary transformation for CSPs. NFV, combined with SDN, cloud computing, data center networks and big data, are key components of network transformation that provide the foundation for the next generation CSP.
Business transformation often includes evaluating and changing the revenue, organization, cost structure and capital expenditures models, while taking into account that the legacy models will remain in some form for a period of time.
In many cases, we see complete realignment of the business. An excellent example is Orange – which implemented its “NExT” plan in 2006. This not only brought together three different business units and brands under the Orange umbrella, but also defined twenty major objectives spread over six different areas: revenues & finance, products & services, subscriber base, customer relations, efficiency & performance, and Human resources. This was followed up by the Orange Essentials2020 plan in 2015 which is focused squarely on the customer. As part of this plan, all decision making will be based on the perspective of the customer – how they use and experience the network. Additionally, it will be refocusing its capital spending on fields where it can capitalize on its assets and offer strong growth opportunities.
Other business transformations come in the form of mergers and acquisitions (to enable scale and cost savings) geographic expansion, customer acquisition and technology acquisition. Additionally, some operators sell off assets to fund investment in areas of growth.
For instance, Verizon has been selling off a significant portion of its fixed network where it has not made investments in FiOS. However, it has been using those funds to enhance its wireless network, as well as its Digital Media Services division. Over the past few years, Verizon has been acquiring companies that will form the foundation for its OTT video service. This includes upLynk and EdgeCast – which enabled the platform to efficiently deliver video and audio content, digitalize it, format it, and get it out to the end customer. OnCue was acquired for its customer facing interface. Finally the AOL acquisition provides them with an ad tech platform to insert the advertising. Verizon views video and the advertising associated with it as key elements of its future growth.
These are just a couple of examples of business transformation. In short, it’s about analyzing current operations, rethinking both the operating model and the core business model, defining a strategy and putting it into action.
The last major area of transformation is on the services side. For consumers, the easiest step in service transformation is service bundling, followed by service blending, service personalization and creating an integrated multichannel user experience across all platforms. The network transformation enables this capability but it is analytics that can really enable the services transformation.
There is big data and small data. The key differentiator between big data and small data is the targeted nature of the information and the fact that it can be easily and quickly acted upon. Big Data analytics can provide overall trends – like how many people are watching “x” between 8-11 pm – while small data is more focused on what you are watching between those same hours. Small data can provide the granularity necessary for an operator to truly personalize and customize services based on an individual’s usage patterns.
From a B2B perspective, the network transformation can enable operators to not only offer all of their services via the cloud, but also public and private cloud services, as well as expand service portfolio to include managed services and IT consulting. Additionally, with SDN as an enabler, the new CSP will offer more automated, programmable and self-services applications allowing business customers to easily add or change services, scale bandwidth to meet their changing needs and manage their network all in near real time.
The new CSP must transform via a long-term, strategic plan which includes the network, businesses and services. This transformation can drive new revenues, reset the cost structure and pave the way for lasting relevancy in a highly competitive and changing market.
An ancient proverb stated it best: “He who hesitates is lost.”