The Five Trends in Service Provider Network Transformation from our Conversations with Global Leaders
Over the last several years, we have been working with some of the largest and most successful Communications Service Providers (CSPs) in the world, and it's been fascinating to be part of their transformation teams, contributing to their large-scale projects, as virtualized and software defined networks emerge and legacy networks continue to fade into the past.
Our industry is still very different in different regions, with different regulations, different ownership and business models, different user behavior and different customs. But from our vista, in the middle of hundreds of network transformation projects (not just within service providers but within large enterprises) it’s interesting to see how regardless of where our customers are there are some overriding trends that are dominating the industry.
Five Proven Trends in CSP Network Transformation
1. Digitization Leads to Datification
There is a huge amount of money to be unlocked by CSPs based solely on the oceans of data running through their networks. As traditional voice, data and messaging services become more and more commoditized, having a strategy to leverage data and analytics, to leverage the massive advances in Artificial Intelligence or AI (not only for consumer and business applications, but to operate more efficiently) will be key to future monetization.
2. Software Everywhere
In order to "follow the money," transformation to virtualized networks and software defined networking is fundamental to lowering operational costs, but also to launching new services quickly and productively. IP networking has now advanced to the point where almost all service becomes possible but in order to even begin to excel at delivering convenient and desirable new services to consumers and businesses, networks must be software oriented from the ground up.
3. Internet Intensity
Over-the-top (OTT) players, the challenging competition, offering apps and streaming content via the Internet, have increased their dominance, even in core communications services such as messaging and voice. WhatsApp, Viber, QQ, iMessage and dozens more already represent more than 80 percent of all messaging traffic, and Skype alone accounts for more than a third of all international voice traffic minutes. CSPs who have not stepped up with their own OTT services are facing significant decreases in their basic communications service revenues (for many, declines in the neighborhood of 30 percent in SMS messaging, 20 percent in international voice, and 15 percent in roaming according to PriceWaterhouseCoopers).
Combined with intense competition due to lagging industry consolidation, this pattern has led to steep declines in average revenue per user; at best, minimal revenue growth; and tightening margins. In their recent service report, “Digital Transformation: Customer Centricity Crucial for CSPs,” Strategy Analytics Wireless Operator Strategies (WOS) recommends that service providers target 6-8 percent margin improvements from digital transformation.
4. Internet of Everything, Connecting People and Things
Transforming networks to deliver human real-time communications services, in an attempt to recover from declines in traditional voice, for example, is possible when CSPs have a broader mission, which the growing Internet of Things (IoT) and Industrial Internet of Things (IIoT) are driving. With virtualized and software defined networks, many CSPs are unlocking new revenue streams associated with connectivity of machines. This has been a major driver of strategists' business cases for investment - when networks are digitized and when connectivity is more ubiquitous (including the move to LTE and 5G) those networks can handle even the most sophisticated applications. Those networks can layer private networks over the public Internet, and connect private, public and hybrid clouds.
5. Follow the Money: Revenue Growth Through New Services, Cost Control through Automated Operations
Finding ways to save money through network automation can dramatically improve efficiencies, while also dramatically improving the environment for introducing new services. This all can be done via "the cloud" - and what's exciting about the "Telco Cloud" is the ability to support Unified Communications as a Service, for example, on the same "platform" offering OTT services to consumers.
Done right, moving to the cloud is the simplification strategy, however this requires a great deal of planning and willingness to reconfigure the structure of not only the "network" but the organization, the financial models, new pricing schemes, M&A strategies to bring more digital capabilities and talent to bear, and an openness to cultural change. Creating a DevOps group, for example, can help move CSPs into the software era, a talented "Next-Gen" team who can leverage platforms like Kandy.
Even as CSPs become more like software companies, they are still in the enviable position of providing the lifeline for all digital commerce - secure, reliable connectivity. And even as we increasingly move to a software dominated world, the most compelling offer is network speed and throughput; every consumer and every business and organization needs it.
Investments in telecom modernization are critical to preparing for even more dynamic, competitive environments. Armed with the right infrastructure and software supporting that infrastructure, the most successful CSPs of the future will be ready to take on new and profitable opportunities.