What has the Digital Telco got to do with network outsourcing? Quite a lot. The Digital Telco aims to move away from a network centric business, which is essentially infrastructure-focused, to a business that is defined by a multitude of digital services and service innovations. The old Mobile Operator sees itself as a provider of connectivity, while the new Digital Telco looks at itself as a seller of digital services - from communication services, entertainment, information to everything else that can be packaged and delivered over today's mobile IP networks.
According to IHS Infonetics Service Provider Outsourcing to Vendors report published last month, the total amount spent by Mobile Operators on outsourcing and managed services amounted to US$66.6 billion in 2014, albeit decreasing slightly by 0.4% compared to the previous year due to fluctuations in the forex market. Of this amount, US$26 billion was spent on managed services, comprising operations, network maintenance and network planning and design, said the research company.
Towards Leaner Operations
Digital Telcos are expected to push for leaner operations as complexities continue to grow, in particular, across the many networks they presently operate. Technology evolution has seen Mobile Operators trying to outpace each other in unveiling the next fastest network and the path saw Mobile Operators moving from 2G to 3G, to 3.5G and then to 4G LTE and now to LTE-A. Lately, LTE-U, the latest technology that aims to secure more bandwidth for Operators by capitalizing on the unlicensed spectrum commonly used for WiFi connectivity; and 5G, the next game-changer that is expected to deliver over 60fold increase in data speeds, have been successfully tested across labs worldwide, with both technologies slated to dominate new network deployments by Mobile Operators globally in years to come.
Just this week, Huawei and China Unicom announced the rollout of LTE-M, what both companies term as LTE for Machine-to-Machine that leverages 4.5G for providing connectivity for the Internet-of-Things(IoT) networks. Add smallcells, LTE multicast and broadcast as well as M2M networks such as LoRA and Sigfox to the equation, and most people will agree that despite the efforts to simplify the management of heterogeneous networks, all those network layers heaped together give Mobile Operators little choice but to maintain fat yet complex, resource-intensive operational structures.
Coverage to Cash - No More
In the past, Mobile Operators' network expansion meant that once coverage is established in a new area, cashflow would automatically follow. New coverage generated new take-up numbers as the rollout of each network introduced something new for subscribers. First it was mobile voice and SMS, then it was WAP services which was the early version of mobile data followed by 3G that enabled a fully fledged internet experience. The novelty factor remained a strong influencer even for 4G, as the market saw the technology as yet another breakthrough service, enabling users to go beyond Internet browsing to actually streaming movies, conducting live video calls and playing video games on their mobile devices.
The coverage-to-cash phenomenon however, is seeing a gradual die-off. Although subscribers continue upgrading their devices and mobile plans as new technologies go live, total cash spent on their new plans (say, 4G LTE) has only increased minimally. Average Revenue Per User (ARPU) for Mobile Operators has declined over the last 3 years mainly due to the stiff competition that drove prices down and the fact that complementary networks such as Wi-Fi and fear of overages has led to more and more people to reduce the consumption of rich content when they are on cellular connection.
What does this bode for Mobile Operators? On one hand, network investments are growing ceaselessly. On the other, the spending merely beefs up their competitive edge but does not translate into equivalent growth in cash flows. What results hence is a squeeze in profit margins, leading to Mobile Operators to rethink their business strategy. This is perhaps where most Operators will start assessing their existing value proposition as network operators and whether this should give way to a bigger, and more lucrative role as Digital Telcos, which will then require them to work towards leaner network operations as focus shifts to services they offer, and which will inevitably, require them to outsource a large number of non-core network functions to network vendors who are far more specialized and focused in these areas.
Equipment vendors such as Alcatel-Lucent, Ciena, Cisco, Ericsson, Fujitsu, Hitachi, HP, Huawei, IBM, Juniper, Microsoft, Motorola, NEC, Nokia Networks, Tellabs, UTStarcom and ZTE, as listed by IHS in its report excerpt, bring with them not just their equipment, the technology and the expertise, but also the experience and a ready ecosystem that accelerates new network deployments and enables faster time-to-market. This is evident in the well-established collaboration between equipment vendors, local contractors and system integrators and also supporting vendors providing solutions for areas such as network optimization and network security, enabling the latter to prepare, deliver and manage the network end-to-end.
For example, Alcatel-Lucent and Huawei have partnered JCD Decaux, the premium broadcast supplier in Out-of-Home media, to deploy Mobile Operators' smallcells in urban areas. The global partnership will mean that Mobile Operators who would have previously been involved in securing sites and arranging commercial agreements with various real-estate parties can now leave those complexities to vendors who will be in charge of bringing to live full network coverage for an area, with almost zero involvement from the Mobile Operator. Infact, the ecosystem developed by today's leading vendors have matured to the point that partners such as JCD Decaux can themselves become network providers - in this case, as a smallcell network provider having powered more than 1 million outdoor advertisement panels across 55 countries. The company has already been selected by Vodafone UK last year for the deployment of Vodafone's smallcells throughout UK.
Digital Telco and the Telco's New Business
What this essentially means for Mobile Operators is that they can now focus on building new revenue streams, leveraging the increasing consumption of digital content and the popularity of mobile services such as mobile commerce and mobile payments. Digital content such as Mobile TV and music streaming as well as thousands of apps are being consumed everyday and the ensuing micro payments and subscriptions are seeing content providers raking in millions from over a billion of mobile users worldwide.
Towards this end, Mobile Operators' focus will shift to core network elements that enable the rapid rollout of these new-age services, rather than new networks. This is where service-enabling telecom software solutions will start taking centerstage, namely frontliners such as policy and charging control, real-time convergent charging, mediation and billing solutions. Product development teams will leverage these functionalities to enable them to quickly design new plans and product bundles and also support customer services with real-time updates that are able to pinpoint issues and enable them to access latest updates on the subscribers' usage and spending.
These functionalities are also critical for the introduction of richer features and add-on services on today's mobile service plans - for example, contextual offers, data rollover programs and sponsored data plans - as they depend on systems that provide real-time visibility into subscriber consumption habits and spending patterns. As Mobile Operators continue acquiring enhanced capabilities in these new areas, they will be moving away from the network and closer to services, content and subscribers, with the Digital Telco gradually taking shape. The outsourcing market, meanwhile, will continue to prosper.