"DX" Can Mean Almost Anything

Without a workable definition, it will be hard for any telcos or enterprises to figure out whether their “digital transformation” efforts and spending have had any positive effect. 

“Digital transformation” frequently is assumed to be an enterprise or telco objective, without specifying what that means. Colloquially, many assume it simply means converting manual processes to automated processes, or substituting digital technology for existing processes.  Quite often, that is a meaningful practical definition. 

In other cases digital transformation applies mostly to the customer-facing operations (sales, activation, support, fulfillment). Others emphasize the creation of new services and revenues beyond data transport. In that sense, it is a euphemism for “moving up the stack” or “taking on new roles within the value chain.”

The point is that DX is such a broad term as to be almost devoid of meaning, unless we speak concretely about the particular process, function or outcome we are trying to change. 

source: Ericsson 

With the caveat that a business model embraces all operations that any enterprise or organization must support to make money, digital transformation in its widest sense means new revenue models. In itself, that is about as broad a concept as that of the “business model,” which is all the processes any entity has to undertake to identify a customer problem, create its solution, deliver the solution and create a sustainable revenue model.  

source: TM Forum 

“Digital transformation is the process of using digital technologies to create new--or modify existing--business processes, culture, and customer experiences to meet changing business and market requirements, says Salesforce. As you would expect, Salesforce focuses on all customer operations. 

Clothes also tend to put the focus on customer-facing operations. “the realignment of, or new investment in, technology and business models to more effectively engage digital customers at every touchpoint in the customer experience lifecycle,” says Altimeter Group. 

In principle, according to the TMForum, DX can apply to almost any process conducted by an organization. So it might be best to envision digital transformation as a layer cake or continuum, where processes are changed little by little, starting with customer-facing operations in many cases, but ending up with creation of wholly-new or different products and revenue streams. 

That means DX will happen in stages, over time, from easiest to hardest processes, as would be the case for most information technology projects, changing operational processes one at a time.

"The End of Communications Services as We Know Them?"

“The end of communications services as we know them”  is the way analysts at the IBM Institute for Business Value talk about 5G and edge computing. 

One of the realities of the internet era is that although end user data consumption keeps climbing, monetization of that usage by communications service providers is problematic. Higher usage might lead to incremental revenue growth, but at a rate far less than the consumption rate of growth.

That is the opposite of the relationship between consumption and revenue in the voice era, when linear consumption growth automatically entailed linear revenue growth. Though there was some flat-rate charging, most of the revenue was generated by usage of long-distance calling services. 

“On the surface, exponential increases in scale would seem like a good thing for CSPs, but only if pricing keeps pace with the rate of expansion,” the institute says. “History and data suggest it will not.”

“Ericsson predicts that by 2030, ICTs (app, platform, content and service providers) will net a staggering $31 trillion in 5G-related consumer revenues,” the institute argues. “But, only 12 percent of this market is expected to be addressable by CSPs.”

“CSP consumer revenue growth is projected at less than an anemic one percent annually,”s ays the institute. “Despite optimism that consumers may be willing to pay a premium for at least some 5G services—for example, low-latency gaming—initial attempts by operators to charge one have failed,” the institute says. 

Analysis by Nokia and Bell Labs Consulting projects that only 13 percent of the $4.5 trillion spent by enterprises with ICTs in 2030 will come from basic connectivity. 

In substantial part, all that is a result of deliberate choices. When the global connectivity industry decided on use of TCP/IP as its next-generation platform, it also agreed to a formal separation of apps and content from connectivity. 

In other words, where app availability and network ownership were unified, in the IP era, there is a fundamental separation of apps and connectivity. Any lawful app can be used by any customer on any compliant network. 

The networks are open, not closed. That being the case, no connectivity services provider can bar lawful use of the access network to use any public IP platform, app or content provider. 

Nothing bars a connectivity provider from owning and supplying applications, content or platforms. But neither is a connectivity supplier logically required to approve use of the access network by any lawful IP app, content or platform supplier. 

So there was some early frustration about the fact that “anybody can use my network without paying me.” 

But that is precisely what TCP/IP networks allow and support. It is the fundamental logical architecture of the whole ecosystem. 

It is realistic and correct to state that “communications service providers (CSPs) are projected to miss out on most growth unless they adapt to add differentiated value into cloud native digital services, applications, and solutions,” as the institute says. 

But that was always an understood outcome of using IP and the internet as the fundamental architecture for customer and user access to platforms, apps, content and services. The whole point of TCP/IP is to allow “anybody to connect to anybody” no matter which network they use. 

That is a logical outcome of an architecture that separates the physical “access” function from all apps, content, marketplaces or services using such networks. There are logical conclusions for growth as well. 

Connectivity spending tends to grow in line with gross domestic product, especially when take rates approach 100 percent. At that point, every potential customer already is one. 

To be sure, new connectivity products are created from time to time, and some of them have mass market implications for connectivity providers. But most of those innovations are replacements for existing services. 

5G is an example, even if it mostly replaces existing 4G accounts in mass markets. Secure access service edge is an enterprise app that replaces virtual private networks. Software-defined wide area networks replace MPLS (multiprotocol label service). 

Relatively rarely does an entirely new category of connectivity services arise which does not cannibalize an existing service. Of course, there are other growth strategies. 

“If CSPs are to thrive, most will need to develop new competencies and assert themselves in new roles in value chains,” the institute argues. “CSPs should seek new ways to make money,

beyond metering connectivity and access to data, as these traditional mainstays of CSP business models are likely to commoditize.”

It is reasonable advice. Still, the observations and advice are well within the bounds of what has  been talked about for decades: namely  move beyond connectivity and into platforms, applications, solutions. 

In other words, take on new roles in the value chain. It is reasonable but difficult advice, not because executives are unwilling to do so, but because the obstacles to such strategies are so daunting. As the old adage goes, “telcos are lousy at innovation.”

“Strategic and operational decisions being made by CSPs today are critical to their ability to compete long-term against cloud native competitors,” the institute argues. Many would argue that the fight was lost long ago. 

It is reasonable enough to argue that connectivity providers should, if they can, become platforms. The stark reality is that this is going to be exceedingly difficult. 

Huge amounts of new value have to be discovered and created, no doubt. That value creation leads to revenue generation. It is reasonable to argue that much of that value will be found in new roles within the ecosystem. All are sound observations. Execution has been the issue, historically.

Telco Core Competence and Outsourcing

If, 20 or 30 years ago, you had asked any telecom executive what a service provider’s core competence was, you’d invariably get an answer related to “we operate quality networks” or “we understand networking” or something of that sort. 

Today, you might often get an answer that continues to emphasize the ability to build and operate communications networks. The odd thing is that most service providers are “building and operating” less these days. 

Few have gone as far as Sprint, which at one point outsourced the operation of its core network. But it is quite common for service providers to outsource towers, for example. And compared to the sourcing of core technology today, as compared to the monopoly era before 1990, telcos outsource almost all their core technology to third parties. 

To illustrate, where AT&T once developed and built all its core technology using Western Electric and Bell Laboratories, it now buys almost all its core technology from third party suppliers. 

That includes operating systems, edge computing, cloud computing, billing and operations support systems and even core networks, according to a survey of 500 telecom industry executives undertaken by the IBM Institute for Business Value and Oxford Economics.

source: IBM Institute for Business Value 

Though the IBM institute was looking at service provider willingness to use third-party cloud computing suppliers, the general principle--more outsourcing--seems to  apply to all core network technology. 

Mobile operators now are open to partnering with hyperscale cloud providers to supply the computational power needed by virtualized 5G networks, as well as to supply hooks for customer edge computing. 

Still, one can see clear signs of outsourcing of operations support systems, billing support systems, IP multimedia subsystems for voice, video and text messaging, as well as 4G and 5G core networks.

The point: one might wonder whether the telco "core competence" is something other than building and operating wide area communications networks.

Console Connect by PCCW Global: "We Don't Even Have to Know Who the Customer Is"

Console Connect, the PCCW Global automated ordering and interconnect system, is based on a community of partners including cloud services providers, networks and enterprise private clouds. 

The system is so automated--including settlements--that "we don't even have to know who the customer is," says Marc Halbfinger, PCCW Global CEO. Over the past year, PCCW Global has added 800 customers without any sales personnel contact. 

"It was 20 Years Ago Today" (Well, 23)...

23 years ago on June 24, 1998, AT&T acquired Tele-Communications Inc. for $48 billion, marking a reentry by AT&T into the local access business it had been barred from since 1984. 

Having spent about two years amassing a position in local access using resold local Bell Telephone Company lines, AT&T wanted a facilities-based approach, and believed it could transform the largely one-way cable TV lines into full telecom platforms. 

That move was but one among many made by large U.S. telcos since 1994 to diversify into cable TV, digital TV, satellite TV and fixed wireless, mostly with an eye to gaining share in broadband services of a few different types. 

By some accounts, TCI was at the time the second-largest U.S. cable TV provider by subscriber count, trailing only Time Warner. TCI had 33 million subscribers at the time of the AT&T acquisition. As I recall, TCI was the largest cable TV company by subscribers. 

For example, in 2004, six years after the AT&T deal, Time Warner Cable had just 10.6 million subscribers. In 2000, by some estimates, Time Warner had about 13 million subscribers. That undoubtedly is an enumeration of “product units” rather than “accounts.” Time Warner reached the 13 million account figure by about 2013, according to the NCTA. 

Since 1994, major telcos had been discussing--and making--acquisitions of cable TV assets. In 1992 TCI came close to selling itself to Bell Atlantic, a forerunner of Verizon. Cox Cable in 1994 discussed merging with Southwestern Bell, though the deal was not consummated. 

US West made its first cable TV acquisitions in 1994 as well. In 1995 several major U.S. telcos made acquisitions of fixed wireless companies, hoping to leverage that platform to enter the video entertainment business. Bell Atlantic Corp. and NYNEX Corp. invested $100 million in CAI Wireless Systems.

Pacific Telesis paid $175 million for Cross Country Wireless Cable in Riverside, Calif.; and another $160 to $175 million for MMDS channels owned by Transworld Holdings and Videotron in California and other locations. 

By 1996 the telcos backed away from the fixed wireless platforms. In fact, U.S. telcos have quite a history of making big splashy moves into alternative access platforms, video entertainment and other ventures, only to reverse course after only a few years. 

But AT&T in 1996 made a $137 million  investment in satellite TV provider DirecTV. 

Microsoft itself made an investment in Comcast in 1997, as firms in the access and software industries began to position for digital services including internet access, digital TV and voice services. In 1998 Microsoft co-founder Paul Allen acquired Charter Communications and Marcus Cable Partners. 

I remember all these events well, as I began working in the U.S. telecom industry in 1983, just prior to the breakup of the AT&T system in 1984. As a result, much of my work has been in the area of competitive communications.

2030 Bandwidth Needs and Access Speeds Will be Determined by Number of Users Per Account

Consumer broadband access quality (speed, latency, availability) always is an evolving and moving target with distinct profiles that vary by geography and other social measures. Rural areas will always lag urban areas on performance metrics, simply because of the high cost of building networks in areas of low density. 

Demand also plays a role, as the presence of larger accounts, business customers and higher-income customers will always be higher in cities than rural areas. And suppliers always respond to higher demand. 

So inequalities of network performance can persist, even when demonstrable progress is made. In 2020, for example, at least 37 percent of U.S. home locations could buy gigabit services. 54 percent of locations could buy service operating between 100 Mbps and 900 Mbps. About seven percent of locations could buy service operating at the minimum 25 Mbps speed defined as “broadband.”

The areas of real need are the four percent of locations that could not buy service at the minimum. Notably, though, the percentage not able to buy “broadband” is decreasing. 

source: Cartesian 

Keep in mind that most people in the United States live on just six percent of the U.S. land surface, according to the USDA. Unsettled or rural areas are exceedingly common. 

About 94 percent of the U.S. land surface is unsettled or lightly populated, including mountains, rangeland, cropland and forests. 

The point is that rural coverage is important, and also difficult in a continent-sized country with so much largely unpopulated areas. 

That noted, everyone expects household data consumption to increase. The trick is planning for future capacity needs in a way that is graceful, and which does not cause firms to fail because they made unwise decisions about how much capacity to supply. 

Hundreds of megabits per second is today’s standard. 

source: Cartesian 

Tomorrow’s standards will be in the gigabits per second, in all likelihood. The trick is to scale supply to match demand, without over-investing, too soon. Business failure is the risk when suppliers invest in capabilities people do not wish to buy. 

In that regard, much of the capacity demand will be driven by content consumption, as has been the case over recent decades. And content consumption is powerfully affected by the number of users sharing any single connection. So much of the demand for the fastest speeds (roughly equating to volume of data consumed) is generated by multi-person households. 

Multi-user households using many concurrent super high-quality video applications (extended reality, for example) represent one possible requirement for multi-gigabit-per-second data rates. 

Source: Fiber Broadband Association

An important caveat, then, is that there is a huge difference between projected data demand for households of various sizes. A four-user household might require 2 Gbps. A single-person household using the same applications, with the same intensity, might only require 500 Mbps. 

A two-person household using the same apps, with the same intensity, might require 1 Gbps. The problem is that all networks must be built to satisfy the requirements of the most-demanding users as well as lighter users; single-person accounts and multi-person accounts. 

The U.S. has an average household size of 2.5 persons. That might imply an “average” per-account speed of 1.5 Gbps by 2030. 

source: Fiber Broadband Association

Fixed Wireless Matters for Some ISPs More than Others

Fixed wireless using 4G and 5G will be important at the margin for connectivity service providers. More than 70 percent of all service providers are now offering fixed wireless, according to Ericsson. 

Out of the 311 service providers Ericsson recently surveyed, 224 offered fixed wireless services. That said, fixed wireless will be important for most service providers only at the margin. At present there are perhaps 75 million active fixed wireless accounts in service globally. 

There are about 1.12 billion fixed network broadband subscriptions globally, Ericsson and others estimate. So less than seven percent of active fixed network internet access lines are provisioned using fixed wireless. 

source: Point Topic 

Of course, fixed wireless matters quite a lot for some connectivity providers who can leverage fixed wireless to sustain broadband operations where fiber to the home is unaffordable or where some providers can take market share. 

T-Mobile in the U.S. market, for example, has zero share of the home broadband business generating as much as $195 billion in annual revenues. If T-Mobile can use fixed wireless to take just one percent share, that is an incremental $2 billion in annual revenues.  

source: Ericsson

When Virtual Does Not Yet Fare Well as Face-to-Face for B2B Sales

As parts of the world gradually attempt to emerge from the Covid pandemic, business-to-business and business-to-consumer operating practices are in flux. Face-to-face business meetings disappeared, replaced by video conferencing and other tools. Industry exhibitions and trade shows were virtually impossible for much of the past 18 months. 

As we recover, there remains much belief that virtual formats will remain more important than in the past. So what do we know, at this point, about what works--and seems not to work--for virtual events?

So far, the consensus of business-to-business trade show professionals is that some aspects of the face-to-face experience do not translate well to virtual formats. 

“Virtual exhibit booths do not work for some events,” says a report by the Center for Exhibition Industry Research (CEIR), which surveyed 346 executives globally who are responsible for putting on business-to-business trade shows. 

The survey reports “exhibitors are complaining of inadequate ROI,” including lead generation, for example. 

Also, “motivating attendees to opt-in to engaging with exhibitors has been problematic,” the survey finds. Similar problems appear in the area of engagement. 

“Engagement and networking in the virtual space is difficult,” the study says. “Keeping attendees engaged for extended periods of time is challenging as is getting them to log back in.”

“There is some pushback on the part of attendees to engage via video; this makes networking and engagement with exhibitors challenging,” the study says. 

Event organizers have found that virtual event sales cycles are longer. 

Faster Broadband is Inevitable, How We Get it is Another Matter

Definitions always matter, and especially so when considering eligibility for government funds to support whatever business a firm happens to operate. Lots of people disagree that the U.S. federal government definition of “broadband” should remain at 25 Mbps/3 Mbps. And, over time, the definition will be changed. The only question is when, and to what minimum level. 

So some advocate a minimum broadband  definition of 100 Mbps/100 Mbps. Support for that definition includes some in the U.S. Senate. As always, there are trade offs and business implications. 

Capital investment requirements; efficient use of scarce capital; user behavior; willingness to pay; current and anticipated usage profiles all are important. Cable networks have an advantage in basically having upgraded virtually all U.S. plant to gigabit speeds downstream. Upstream improvements are much more difficult, costly and time-consuming.

How the upgrades can happen within the feasible limits of today’s business models, for all would-be suppliers, is key. Government subsidies are important at the margin, but most of the upgrade activity has to be undertaken by private suppliers.

And that means there must be a clear understanding of how the upgrades fit the business models. In that respect, the upstream definition will be more challenging than the downstream definition. 

Up to this point, the key element in the broadband definition has been downstream speed, as that remains arguably the most-important single numerical indicator of “quality.” But all observers agree that upstream speeds now are more important. And that is the rub. 

Telcos and independent internet service providers can rip out copper and replace it with optical fiber access at a faster pace, to be sure. But the business model is challenging. Were it not so, they’d already have done so. 

5G, fixed wireless and satellite networks also would be challenged to supply 100 Mbps upstream, though there is a path to incremental downstream upgrades that do not break the business model. 

For the majority of U.S. households and locations served by cable TV networks, the 100/100 standard would be troublesome only in the upstream direction, but still would require reworking of most of the physical plant. 

For telcos the challenge would be far greater, requiring a replacement of copper access facilities. For every fixed network operator save Verizon, the 100/100 definition would require ripping out and replacing a majority of physical plant.

Rural areas of low housing density would be especially troublesome. 

Though cable operators might have a more-graceful upgrade path, telcos generally must rip out the existing legacy network and replace it with entirely-new infrastructure to meet the 100 Mbps minimum upstream standard. 

Estimates vary, but a huge telco capital investment would be required to meet a 100/100 minimum. Customer demand is an issue, but less an issue over time, as most consumers now buy faster services than they used to, and often pay more money than they used to, for broadband service. 

The 100 Mbps downstream goal is more realistic. About 49 percent of U.S. residents buy fixed network service operating between 100 Mbps and 200 Mbps. 

Nearly 32 percent buy services running faster than 200 Mbps. 

But a significant percentage choose to buy services operating at lower speeds. Some 20 percent of all customers purchase services running no faster than 75 Mbps, according to Openvault data.  

We can argue that 80 percent of the market already buys service at speeds as high, or higher than, the proposed 100 Mbps minimum definition. But 20 percent of the market does not do so, possibly because they cannot buy anything else, but many also might choose not to buy service at 100 Mbps. 

source: Openvault

Setting a higher minimum definition will happen. But it matters what the definition entails. Virtually no platforms could meet the 100 Mbps upstream definition quickly. FTTH networks could do so, but only at a cost that stresses the current business model. 

And that matters. If 54 million U.S. homes are served by fiber to premises networks, and there are about 138 million total U.S. homes, then fully 61 percent of telco passings would have to be replaced to meet the 100/100 standard. 

One might argue that fixed wireless, 5G or some other network could meet the 100 Mbps downstream speed. But none of the other networks are engineered to support 100 Mbps in the upstream path. 

More than anything else, it is the impossibility of practical mass market networks hitting the 100 Mbps upstream speed that is the key problem. 

B2B Sales Have Changed, More to Come?

According to Elmar Rode, Oracle Global Industry Solution Lead, up to 60 percent of Oracle leads come before the involvement of any sales personnel. In other words, potential customers are doing their research online, before contacting potential suppliers. 

According to Marc Halbfinger, CEO of PCCW Global, the firm gained 800 accounts within the last year completely without the involvement of any sales personnel at all. 

All that suggests something fundamental has happened in business-to-business sales operations. At the very least, we will see more automation, more use of artificial intelligence, more remote interactions. 

But what else will change?

Rode and Halbfinger are among the subject matter experts who will speak about such issues on a PTC webinar July 21, 2021, at 14:00 HST. The series is restricted to PTC members on that date, but the event will be viewable by everyone about 30 days after initial screening. You can view episodes here. 

Sales professionals will still be needed. But it is possible--indeed likely--they will need new skills, and adopt new roles. The panelists will discuss what they believe is coming. 

Why Network Slicing is Key for Enterprise 5G

In principle, and a new survey suggests in fact, network slicing that offers guaranteed quality of service, through the core network, in the access network and on the premises that enterprises desire as a platform for digital transformation.

Fully 75 percent of industrial executives polled by Capgemini  believe that 5G is going to be a key enabler for their digital transformation efforts in the next five years. In fact, 5G is ranked higher than artificial intelligence or advanced data analytics as a driver of digital transformation, behind only cloud computing. 

source: Capgemini 

On the other hand, the specific features enterprise users and customers might want might not be available for a few years. Network slicing is a feature in that category, as it promises guaranteed quality of service, to the device level. 

Multi-access edge computing is the other obvious capability, which would allow local processing that matches the ultra-low latency of the core and access networks. 

About 66 percent of respondents want to implement 5G within two years, but it might take three years for 5G suppliers to have all the network features in place. 

Also, perhaps 33 percent of respondents would consider private 5G networks of their own, and up to half of the largest enterprises, Capgemini notes. 

source: Capgemini 

Cloud Services Spending up in 1Q 2021 55% in China; 29% in U.S.

Cloud services spending keeps growing, as you would expect. But Microsoft’s installed base is inflated, when compared to other suppliers. 

China spending on cloud services grew 55 percent in the first quarter of 2021, says Canalys, increasing spending 2.1 billion (€1.77 billion) over first quarter of 2020 levels and up $200 million (€168.13 million) sequentially.

source: Canalys 

U.S. cloud services spending grew 29 percent in the first quarter 2021 to $18.6 billion, up $621 million sequentially. 

source: Canalys 

In the fourth quarter of 2020,  global cloud services spending grew $10 billion. 

source: Canalys 

Amazon Web Services holds the installed base lead, and likely is understated, compared to Microsoft Azure, which includes operating system and productivity suite plus server sales in the “cloud” category. Many would  not consider that “cloud computing as a service.”

Azure revenue includes sales of the Windows operating system, productivity suites, Xbox, Surface and advertising. Also, keep in  mind that Azure cloud computing also includes server sales, not just “cloud computing as a service” revenues. 

 

source: Canalys  

The “intelligent cloud” segment of Azure represents only about 35 percent of total Azure revenue. Another third of Azure revenue comes from productivity suite revenues. Also, 32 percent of Azure revenue comes from operating systems, productivity suites, Xbox, Surface and advertising. 

I personally do not consider those revenue sources a “like to like” comparison with AWS cloud computing as a service revenues. Actual Azure cloud computing revenue. might be as low as $4 billion a quarter. The point is that any analysis of cloud computing market share based on Azure revenue is incorrect. 

Azure cloud computing might be only a bit larger than Google Cloud, which generated about $3.4 billion quarterly revenues recently.