Introduction – How Telcos Will Compete in the Digital Era
How telcos will Compete in the Digital Era depends in large part on their ability to roll out new digital services, quickly. This is a vexing problem. Cloud is firmly entrenched and we’re moving beyond this era – into a world dominated by digital services. In the past ten to fifteen years, large telcos have focused on building infrastructure that is highly resilient. Their approach was to harden the network and make sure it stays up. Telcos heavily utilize proprietary hardware that’s very reliable. In this way the telco industry has been incredibly successful. But telco infrastructure is not very flexible and product cycles are extremely long.
Visualization from the Opte Project of the various routes through a portion of the Internet- Image from Wikipedia
Meanwhile, over-the-top (OTT) service providers have rushed on the scene. Giants like Amazon, Apple, Facebook, Google, Microsoft, Netflix and others have crashed the party. They provide digital services on top of the networks of AT&T, Verizon, Comcast, Charter, T-Mobile and others. The telcos haven’t ridden this wave as effectively, in part because their infrastructure is so fossilized.
Indeed, just look at the market caps of the large telcos and compare them to many of the companies that are riding the digital tailwind. How can the telcos compete with the “born-digital” players? And how can they keep their networks resilient but bring cloud economics and agility to the equation?
Telcos have lots of assets. They also have large installed bases. As Don Tapscott said on theCUBE last year, “God may have created the world in six days, but he didn’t have an installed base.” The revenue telcos get from each data bit is declining. Their capacity requirements are exploding. It’s not a trivial problem to fix.
Telcos basically have two choices:
- Provide dumb pipe – not a bad business but not nearly as lucrative as…
- Transform and lean into digital services.
Will NFV Provide the Answers?
Yes, some of them anyway.
Network function virtualization came on the scene in 2012. A working group of the European Telecommunications Standards Institute (ETSI) published a whitepaper called “Network Functions Virtualisation, which drew on concepts related to software-defined networking (SDN).”
Like infrastructure-as-a-service in the early cloud days, NFV is more about agility than cost. A key for how telcos will compete in the digital era is adding value beyond voice or carrier services. But their current infrastructure won’t allow them to quickly roll out platforms so customers can create new services. NFV promises to enable infrastructure that allows digital services to be built on top of telco’s core offerings. Or roll out their own digital services and compete further upstream in the value chain.
Either way, telco network infrastructure has to become more flexible. This requires a move away from monolithic systems where capabilities like firewalls and deep packet inspection are cemented inside of an infrastructure silo. In order to compete, telcos must be able to deliver more flexible mobile services and virtual customer premises equipment (CPE) – i.e. software-defined services such as telephony, routing, switching, set top boxes, gateways, etc. NFV is part of the answer and this is how telcos will compete in the digital era.
It’s not easy. Telcos have to refuel the plane in mid air. So they must be selective on which parts of the infrastructure they move. It will also require a cultural transformation – one where upgrades are done and planned “periodically” to one where there’s a daily routine of change. This is an operational challenge. Remember, these are large companies. Most are monopolies in the U.S. and other parts of the world– not so much the case in Europe.
Cloud Economics, Innovation and Data
How telcos will compete in the digital era will require innovation. In many respects, NFV hopes to help telcos and service providers innovate by replicating the cloud economics we’ve seen in the enterprise. It’s more than just lower CAPEX. The API economy, zero marginal costs, global scalability, maintaining resiliency all while creating network effects. And, importantly, the ability to roll out new digital services at a much more rapid pace.
But this is just the start. The real innovation battle will be fought with data. That is, placing data at the core of the business. And building digital services that leverage an accessible (non-siloed) data model. Fundamentally this is why the Internet giants are winning. They’ve build a scalable data model that is a mainspring of innovation. Yes they have the infrastructure to scale as well, but data is foundational for these companies and their digital strategies.
NFV is a starting point but in some respects it’s table stakes.
CUBE Conversation: A Startup to Watch in the NFV Space
A company we’ve been tracking in this market is Pensa, Inc. Recently Peter Burris interviewed the company’s CEO, Tom Joyce in a CUBE Conversation, which is captured in the curated cliplist below. Their discussion is very relevant to the concepts in this post. You can click or scroll through the thumbnails to play the clips as you like. Here’s the discussion flow.
- Who is Pensa?
- What’s happening in the service provider/telco space?
- What are the economics that Pensa brings to service providers?
- Nokia, a customer proof point.
- The role of open source in NFV.
- What we can learn from traditional enterprise adoption of cloud.
- What to expect from Pensa in the future.
How do you see NFV impacting the telcos? Can they keep pace with the OTT players and will NFV allow them to move faster?
