5G Will Run on Wholesale Model in Malaysia and Brunei

Reliance on wholesale market structure--one physical network and many retail competitors--has been a feature of fixed network policy for some time. It also is becoming the foundation of 5G platforms in some countries as well. 

Malaysia and Brunei, for example, will build a single national 5G physical network, which will support all potential retail providers of 5G service in those countries. Both of those networks will be state-owned. 

It is not a return to a monopoly framework at the retail level, but is a return to monopoly and government ownership at the facilities level. 

In the 4G era, only a few networks were built using the single wholesale provider model, notably in Mexico, Belarus and Rwanda. A few others were cancelled, including networks in Russia, Kenya and South Africa. 

As you might expect, such approaches are considered unwise by GSMA and other private firms. The dominant mobile framework globally continues to be private ownership of multiple physical facilities. 

Still, there has been concern about the cost of communications infrastructure for some time. But cost is but one of several drivers of national communications policy. 

source: Citi Research

The realm of possibility is directly affected by the costs of future networks. If the application of new architectures and technologies plus infrastructure sharing or offload contains the cost of physical networks, especially wireless and mobile networks, there will be less pressure on the business model and therefore less pressure to shift to wholesale-only infrastructure models.

Cloud Native is Not Simply a Change of Computing Architecture

In a move that tells us much about how telecom network have changed, Telefónica will build its cloud-native 5G core network using IBM Global Business Services as the system integrator while Red Hat and Juniper supply the networking platforms. 

In prior generations of mobile networks, the network would have been purchased almost turnkey from a legacy provider such as Ericsson or Nokia (or Alcatel or Lucent). It was monolithic. 

Now the network is integrated by a major system integrator using open source technology and a distributed, cloud-based and cloud native computing platform. It is loosely coupled. 

In other words, one builds a telecom core network as one would build any other computing network intended to scale. In other words, apps and functions are built how apps are created and deployed, not where they are created or deployed.  

source: Medium

The former emphasis would have been on proprietary hardware; the new approach makes heavy use of commodity hardware. The older approach relied on closed, vendor-specific software. The new approach relies on open source approaches. 

The older approach would have been voice centric. The 5G core network is essentially a computing network that runs voice and other applications, but is designed to support any app. 

Some will view this as a “mere” change of computing architecture. Others will argue it also changes the range of business models a telco can consider. In a monolithic environment, the network owner controls all apps that are lawful on the network as well as which devices can be attached. 

The internet and all cloud architectures do not work that way. All lawful devices and apps may use the network. That produces the product opportunity called “broadband access” for internet service providers. 

That same change creates the whole regime of “over the top” and loosely-coupled app creation that is “permissionless.” Any lawful and technology-compliant app can use the network. Any user or customer with the proper credentials can use such apps. 

To the extent that roles are disaggregated, so are business models. Ownership and operation of the access network does not limit third party rights to create apps that use the networks. But neither are there barriers to telco owners creating their own “third party” apps that similarly use any lawful access. 

The change is that where such apps would mostly have been designed to run “on my network,” they preferably now would be designed to run “on any lawful  network.” The difference is potential customers “only on my network, in my region or country” versus potential customers anywhere globally. 

All of that places new importance on creating value in lots of potentially new ways, most of those ways centered on becoming a supplier of end user apps or platforms to do so. Some of those apps will be “owned” by the telco and designed to run “on my network.”. Network slicing is an example. 

But many others potentially will be designed to run as any other internet app, on any network and in any country where the apps are lawful. Yet others will be targeted geographically, for reasons of language preference, business strategy, capital or human resources availability. 

The point is that the technology change to a cloud native, loosely-coupled, distributed and essentially open architecture changes the realm of business possibility. More new things are possible, but many existing things could be threatened.

How Travel Industry Thinking on Digital Transformation Applies to Telecom

As a practical matter, it sometimes is easier to understand fuzzy concepts such as digital transformation by looking at how other industries see it. In the travel industry, a digital transformation report produced by Skift and Amazon Web Services notes that   

digital transformation offers:

• Customer experiences related to communicating, shopping, and buying

• Pricing, price, promotion,  distribution, and purchasing

• Agility when demand or competitive environment changes

• Analysis and forecasting 

• Revenue, cost, efficiency improvements

• Remain competitive

• Adapt to changing industry circumstances

Note that none of those benefits are quantifiable. They are qualitative changes. So one lesson is that digital transformation is not directly measurable. What can be measured are other business metrics related to the business model, customer satisfaction, acquisition and churn rates or operating costs, for example. 

sources: Skift, AWS

In other words, the emphasis is “transformation,” not simply “digital.” 

Though business process changes believed to be associated with digitalization can be measured, there are no direct quantitative measures of “transformation.” What can be measured is process performance.

sources: Skift, AWS 

What can be measured are the results of changes in business processes “digital strategy” was meant to address. That includes marketing, advertising, customer experience, analytics, automation, resiliency and so forth. More of this; less of that, in other words. 

Digital transformation is qualitative and non-quantifiable. Digitalization is quantifiable, but only as it relates to process outcomes. 

As all that might apply to connectivity businesses, the obvious answer is to focus less on the qualitative benefits (agility, speed, adaptability, revenue growth, cost containment, experience advantages) and more on the practical business outcomes and how digitalizing can help produce the desired outcomes.

Telco Disaggregation is Coming

As it is conceptually possible to separate simple replacement of existing processes with digital versions--keeping the processes intact--and the use of digital technologies to reshape and recreate processes (digital transformation), so it might now be possible to suggest future lines of development for “telcos and retail connectivity providers.”

In principle, as telecom and connectivity networks are virtualized, there are opportunities--or risks--related to reconceptualizing “who does what” and “who and what creates the value?” 

The risk is disintermediation: removing the distributor or middle man from the value chain. The potential upside is the ability to create higher-value services and apps faster, more affordably and more flexibly. 

We might then ask the question: “what is the value of the telco and where is that value located?” 

source: STL Partners 

In part, this is a shift from a vertically-integrated to horizontal model. That can have huge business model implications. The vertical model is closed; the horizontal model is open. The vertical model tends to come with higher costs; the horizontal model with lower costs. 

The vertical model tends to feature lower rates of innovation, while the horizontal model tends to increase rates of innovation. 

The vertical model entails more control of products and business model, while the horizontal model tends to lead to  less control by the telco. Think of the internet as a horizontal model, where functions are disaggregated: access networks are distinct from platforms. Platforms are distinct from applications running on those platforms. 

Another way of looking at the difference is to say that a traditional telco was at the center of its own business. In the internet era, telcos are part of the transport and access function, but not necessarily part of the applications or platform functions. 

In other words, think of telecom as becoming part of the computing business. In that business communications functions are demarcated from applications, hardware and platforms. 

Communications are required, but logically separated from the other higher-order processes. Local area networks require spectrum and access points, but the actual applications, platforms, hardware and functions are logically separated. 

Ethernet cables might be necessary for a local area network, but nobody would mistake connectors and cables for the value of devices, software and functions those cables support.

Disaggregation might lead to opportunities related to creation of vertically-oriented services and apps, but it might also limit the ability to benefit from scale, to the extent that extensive domain knowledge has to be mobilized, and that knowledge will not translate directly to other domains. 

Still, the move to disaggregated processes is subtle. Telcos might gain directly agility, but also face new forms of competition. Telcos might be able to rework cost structures and create revenue growth opportunities, but also face some additional commoditization of contributed value. 

There will be a new balance of “what we do” and “what others do for us.” It is a complicated, multi-dimensional set of changes. 

An analogy is disintermediation and something we might call “re-intermediation.” The internet makes it possible to remove retailers from value chains. That gives us online commerce. But online commerce also allows the creation of a platform and marketplace (Amazon, for example) that recreates a role for the distributor. 

To the extent that telcos are distributors, they face the danger of disintermediation. Look at the move by Google, Facebook and others to own and build their own wide area networks. That removes customers and demand from the retail capacity business.

At the time, there is at least the possibility that exchanges (for bandwidth, cloud computing, edge computing, security, private networks) could be created. Perhaps the form would be a federation of exchanges globally, as it seems unlikely any single entity could emerge on the Amazon model, in terms of scale. But regional exchanges seem possible, as Alibaba is dominant in some markets, Amazon in others, third parties functioning in yet other markets. 

In any event, there are possible positive and negative surprises. Disaggregation does raise, ast least indirectly, a key question: what is the unique core competence of any telco? And how does that get leveraged in a disaggregated network and business model?

Altice Loses Broadband Subs, Comcast Sees Slowdown: Early Signs of a New Trend?

Altice USA reported a lost of broadband accounts in the third quarter, something that has been virtually unseen over the past couple of decades. Comcast, for its part, reported a slowdown in net acquisitions in its third quarter.  

Telco broadband net additions are growing. In the same quarter of 2020, telcos lost subs. Some analysts now believe telcos will continue to gain share from cable companies as telcos scale up their gigabit fiber to the home networks. 

Where cable once had 95 percent share compared to telco digital subscriber line services, and now has about a 70-percent share of broadband lines overall, some now believe telcos will eventually grab half the market.

Inflection Point for Gigabit Access?

To the extent that faster home broadband speed tiers cost more, there is a clear and compelling argument to be made that fixed network providers can increase average revenue per account as customers migrate to higher-priced tiers of service. 

Also, we might be on the cusp of a bigger opportunity for telco gigabit services, as history suggests take rates for gigabit services has reached an inflection point. 

source: Openvault

Historically, popular consumer products accelerate after adoption reaches the 10-percent of homes level, and gigabit internet access now has reached that point. 

Openvault data shows that consumers are migrating to speed tiers faster than 100 Mbps. 

source: Openvault

At the same time, markets for 4G fixed wireless are likely to be centered on rural areas, as urban customers move to services operating faster than 100 Mbps. 5G fixed wireless might be competitive for significant percentages of urban market customers.  In fact, 5G fixed wireless offering speeds between 100 Mbps and 200 Mbps might appeal to nearly half the market.

It is hard to quantify demand for symmetrical services. It seems clear that services with faster upstream speeds, such as telco fiber to home services, could be the near-term winners in that regard.

Digital Transformation is More than Data, but Builds on It

Digital transformation is much more than digitizing or relying on data, but the ability to harness data arguably is a requirement for DT. 

In surveying 4,036 data decision-makers, Forrester researchers found 55 percent of respondents struggling to meet their digital transformation goals. Some 15 percent of data strategy decision-makers say they have already realized their DT goals. 

Data decision-makers have already increased their investment in DT over the past three years by 77 percent and plan to increase their investment by a further 57 percent over the next three years, Forrester says. 

Three-quarters of data strategy decision-makers have seen the volume of data their firm generates increase over the past three years. Some 56 percent have also seen an increase in the amount of data they collect. 

source: Dell Technologies