Introduction
The present decade is seeing a rapid rollout of advanced mobile, fibre and satellite network technologies by Communication Service Providers (CSPs). This trend aligns with Ericsson’s Mobility Report forecasting that 5G will account for 49% of all mobile subscriptions by 2027 and 5G will carry 76% of mobile data traffic by 2029.
This transformative increase in new communication technology deployment demands substantial capital investment, and it is occurring on a large scale with unprecedented speed. Despite demand for improved communications technology, telecommunications industry players have come to acknowledge that their increased investments in advanced telecom technologies have not been yielding the expected Return-on-Investment (ROI). As a result, CSPs now have a new set of structural challenges to contend with:
- ROI Challenge: limited reliable opportunities for monetising advanced technologies; and
- Microeconomic Factors: fewer cost containment options in the recent inflationary and geopolitical environment; and
- Quest for Interoperability: challenges in harmonising technology with open industry standards, without vendor solutions driving open standards’ adoption.
ROI Challenge
Recent investments in advanced telecommunication technologies have not translated into meaningful revenue growth for CSPs. For example, SKT (South Korea’s dominant mobile operator) recently declared 5G was over hyped and has under-delivered on its promise.
The imbalance between rising CAPEX intensity and sluggish revenue growth in base connectivity services requires telco leaders to find ways to navigate through ROI uncertainties to continue investing in NextGen technologies.
Macroeconomic Factors
The escalating essential input cost for NextGen telco tech deployment poses an additional challenge for CSPs to find strategies to navigate through cost uncertainty, without compromising network reliability and customer experience outcomes.
The Quest for Interoperability
Network vendors are slow in adopting NextGen cloud native technology standards. CSPs need to find approaches to navigate uncertainty around industry standards, while gradually shifting towards adopting open industry standards without increasing technical debt and undue cost.
Within this article, we discuss and explore strategic approaches for telco leaders to effectively navigate the following uncertainties:
- Revenue growth uncertainty: Are there alternative approaches for CSPs to maximize ROI from advanced technologies?
- Cost optimisation uncertainty: Do NextGen telco technologies offer options to reduce cost without affecting customer experience and network reliability?
- Industry standards uncertainty: What architecture patterns can enable industry standards alignment with the smallest amount of downside?
Future articles in this series will follow, diving deeper into each topic and the specific strategies CSPs can employ address them.
1. Revenue growth uncertainty
CSPs’ commitment to advanced communication technology adoption has become deeply intertwined with their brand, their reputation in the market, and their ability to stand out from the competition. Therefore, CSPs’ continued investment in advanced technology is an obvious imperative despite rising capital expenditures and operating expenses, alongside flat or declining revenue.
In the immediate term, a priority for the telecom industry is to execute an integrated and forward-thinking business and technology strategy to navigate the uncertainty surrounding revenue growth. The path forward demands not just adaptation but also self-driven innovation to thrive in this evolving landscape. In other words, adopting technology whose development is spearheaded by vendors is unlikely to result in desired revenue outcomes unless there is a clear strategy by CSPs on how to best use those technologies in a way that is consistent with their business strategy.
To address this challenge, telecom leaders need to formulate a strategy to harness advanced network technology features, such as ultra-low latency, exceptional reliability, increased bandwidth, multi-gigabit speeds, network slicing and network API exposure.
Advanced technology features are encouraging capabilities to explore for opportunities beyond traditional connectivity services for enterprise, consumer, and developer segments. Now CSPs with NextGen technology can take the lead in fostering collaborative endeavours to conceive of industry automation use cases and ensure their commercial viability for widespread production deployment. For example, carrier grade private networks, wireless WAN, and Digital Twin.
However, a coherent business strategy that generates meaningful, new revenue growth for CSPs’ technology investments seems elusive. Some are attempting to transform from “Telcos to TechCos”, as in the case of Australia-based CSP Telstra, which sees software engineering as a throughline to top-line growth. Others are attempting to combine media content with digital distribution, as in the case of StarHub, which in 2022 succeeded in securing broadcast rights to the English Premier League in Singapore against rival Singtel. And yet others are attempting a hedging strategy by diversifying into adjacent industries, such as energy retail. Regardless of the approach, the critical factor in creating a competitive advantage against Over-the-Top (OTT) providers such as WhatsApp, and hyperscalers like Amazon, lies in using the core strength of CSPs to better effect. In other words, it is how CSPs integrate their technology assets with their business strategy that has the potential to create meaningful differentiation in the market, and therefore sustainable revenue growth beyond increasingly commoditized connectivity services.
2. Cost optimisation uncertainty
Recent global trends of rising inflation, accompanied by ongoing economic uncertainty, are often reflected in central banks’ announcements about continued interest rate hikes – until, of course, target inflation levels are achieved.
Rising costs impact essential inputs, such as electricity, creating cost uncertainty for major capital projects, such as communication technology upgrades and augmentations. Key areas of cost uncertainty are wide ranging, covering the cost of borrowing capital, spectrum acquisition, operations, energy, labour, semiconductors, and data centre infrastructure.
Cost uncertainty will continue to present a formidable challenge for telecom business leaders striving to keep investor-friendly financial stability and sustainable operations while deploying modern communication technology.
Amidst cost uncertainty, CSPs can use the same advanced network technology they are investing in to help navigate structural cost increases. A few examples follow:
Operations cost: The NextGen communication technologies are not just automating routine tasks but can support AI-based autonomous operations. As per TMF’s Research Survey published in September 2023, Operation & Maintenance (O&M) cost reduction topped the operational efficiency indicators with 57% of CSPs respondents expecting operation cost reduction by shifting towards higher Autonomous Network maturity.
Deployment cost: Cloud computing has made its way into network functions; this enables new telecom networks to run on commodity chips – a phenomenon that was once thought impossible. The OpenRAN movement, prominently championed by Japanese operator Rakuten Mobile, is enabling substantial reduction in cost savings, at least for deployment. Major operators in Europe are getting on board, with recently announcing decisions to invest in massive OpenRAN-based networks. For example, Vodafone (in partnership with Samsung) has chosen to adopt OpenRAN in its network evolution, replacing legacy technology with virtualized network functions on 2,500 sites3.
Energy cost: NextGen networks have cloud native design, allowing dynamic scalability and workload placement. The impact of these features for energy cost management is significant: by scaling workloads up and down based on customer demand, CSPs can gain meaningful savings in energy consumption. In an ideal state, CSPs can use automation and AI patterns to dynamically scale workloads without human intervention, which allows for better responsiveness as customer usage patterns evolve over time.
3. Industry standards uncertainty
The evolution of NextGen communication technologies is being shaped by numerous Standards Development Organizations’ (SDOs), each advocating its own reference architectures, interface specifications and standards. In addition to multiple SDOs, network vendors add further challenge to unification of industry standards by implementing proprietary standards in their solutions.
This situation poses a significant challenge for technology executives who must decide whether to adopt a single framework across network technology domains (e.g. mobile, fibre, cable, satellite) or opt for different standard frameworks for different network technology domains. For example, Broadband Forum recommendation for fibre domain, CableLabs standards for cable domain and 3GPP standards for mobile domain.
The ongoing tug-of-war between telecom industry open standards and vendor-specific reference architecture is not only expected but should persist. This tension serves as a catalyst, driving alignment within the industry and the evolution of standardized telco technology architectures.
To navigate standards uncertainty, CSPs can adhere to a fundamental principle: abstraction.
Abstraction in this context can be applied in the following ways:
- Abstract network devices via standard device models. This simplifies interaction between software defined network management and control systems (SDN-M&C) and multi-vendor and multi-variant network devices.
- Abstract network technology domains (fibre, cable, mobile, satellite etc) via standard network service models. A common and standard network service model hides multiple access technologies’ complexity from Business Support Systems (BSS) and Operation Support Systems (OSS) for activation and assurance.
- Abstract cross-technology domain network services via standard customer service (or product) models. A common customer service model masks the unique technology specifications underpinning access, aggregation and transport communication technologies and decouples customer service provisioning from the nuances of network topologies.
Each abstraction layer ensures that vendor-specific approaches can co-exist with open standards, gradually paving the way to replace propriety standards with mature industry standards.
Conclusion
In today’s global landscape, telecom executives face a multifaceted challenge. They must make significant investments in advanced technology that are yielding limited revenue growth, while grappling with rapidly increasing costs that necessitate reduced operational expenditures. All the while, they must craft a telco network roadmap that aligns with evolving industry standards as well as vendor roadmaps.
The intrinsic value of advanced technology is closely tied to a CSP’s brand, making continued investment a strategic imperative, even in the face of sluggish top-line growth. To address this issue, CSPs must expand their horizons beyond traditional connectivity services by finding ways to utilise their technology investments to create meaningful differentiation against other telcos, OTT providers and hyperscalers.
Amidst the backdrop of global economic uncertainty, essential input costs for telecoms are poised to continue to rise, potentially affecting the industry’s balance sheets. However, this impact can be mitigated by harnessing the features of the same NextGen cloud-native technology that is the subject of CSP investments.
The proliferation of telecom standard development organizations has given rise to multiple telco network reference architectures and standards, presenting a challenge for both vendors and CSPs to find high levels of interoperability between network elements (whether physical or logical). To overcome this hurdle, telco architectures can use abstraction to manage heterogeneity in technical standards, allowing CSPs to gradually create high interoperability between components in their networks while accommodating vendor-specific implementations in the immediate term.
