Telcos Need to Change: We've Been Hearing that for 40 Years

It might be one thing for an industry under threat to agree it has to change to survive. It is quite another matter to figure out precisely where to go and what to become, as part of that effort. And difficulties are greater when roles occur within an ecosystem.

That is the thing about open ecosystems: it is vastly easier to construct new value in the internet ecosystem, compared to the older world of closed networks and applications. 

You might think that is a good thing for connectivity providers: it should be easier to change. But it also is easier for others in the ecosystem to make the changes, and occupy new roles, themselves. In that sense, change is easier for everyone in the ecosystem. But that magnifies the threat of competition.

w3.org 

“The reality of transformational business models and technologies…it is incredibly hard to foresee what is really going to work, and how,” say researchers at STL Partners. 

Firms and industries generally hate uncertainty. It raises questions about where to invest capital, what skills employees require, how to manage demand curves, what products to create. 

One thing seemingly has not changed: advice to connectivity providers to change, which has been routinely heard for four decades. 

“A big question in all this is whether operators have really understood how outdated their traditional operator centric view of the world has become as the industry has changed,” says STL. “Value has increasingly moved to the players that can make all the stuff work: systems integrators and other technology and software players.”

That is what one would expect when vertical integration is replaced by disaggregation; when ecosystems and dynamic marketplaces replace bi-lateral relationships; when friction is removed from business processes by removing or replacing whole segments of the value chain. 

Consider machine-to-machine use cases, which Ericsson notes are built in a fragmented industry context.

source: Ericsson 

Basically, if connectivity providers want to become more relevant and add more value, they are literally forced to consider taking on additional roles in the ecosystem and value chain. That rarely is easy. 

Nor will industry advice-givers ever stop pointing out that telcos have to change, and change faster. All of us have been saying that for 40 years.

Uncertainty--perhaps more than change--is a reality in a connectivity industry that finds its roles changing; new competitors emerging; older value disappearing and new roles as suppliers of value yet to be created. 

IoT, Edge Computing, 5G Private Networks are a "10% of Revenue" Opportunity for Telcos

No matter where one looks--private 5G networking; internet of things or edge computing--it seems observers believe system integrators, hyperscale cloud computing suppliers, solution specialists and infrastructure providers are positioned to reap about 90 percent of revenue in those businesses. 

Mobile platforms, for example,  are being leveraged for private networking. Non-carrier 5G and networking offerings are gaining momentum, says Dan Bieler, Forrester principal analyst. By about 2025, perhaps 90 percent of private 5G revenue will be earned by hyperscalers, system integrators and solution providers, not telcos, predicts TBR. 

source: TBR 

“All major hyperscalers showcased (at Mobile World Congress) how they are getting more heavily involved in the networking  arena,” says Bieler. 

Google is working on network slicing on Android 12 for providing access to Google Cloud. 

Microsoft’s Azure for operators is a 5G overlay on Azure cloud WAN where Microsoft’s internet backbone carries the customers’ traffic.

Amazon Web Services is offering  private 5G solutions and cloud WAN and edge application offerings. 

“A new threat for telcos is on the horizon,” says Bieler. Importantly, “the lines are blurring between cloud computing and networking.”

No matter the stumbles telcos routinely have had in attempting to diversify their business models, or wring more value out of their positions in value chains, such movement remains necessary, if exceedingly difficult. 

Estimates for the total 5G opportunity range from $4 trillion to $6 trillion by 2030, says Dan Bieler, Forrester principal analyst. But the connectivity part accounts for only five percent to 10 percent of this opportunity. 

You can see the pattern in forecasts of internet of things revenue in Africa and the Middle East. 

source: GlobalData 

Or look at “smart city”  IoT revenue by platform.

source: ABI Research 

In one sense, that should come as no surprise. Connectivity typically represents about 10 percent of market opportunity for any network-based product. The rest is devices, operating systems, platforms, enablement and applications. 

To gain more than about 10 percent of the revenue upside, connectivity providers have to move outside that role. That never has proven easy, or successful.

Connectivity and Cloud Computing are Merging: Danger for Connectivity Providers

One big strategic change in the era of distributed, competitive, virtualized computing and networking is that the demarcation between industry participants is becoming more porous. That is to say, formerly-distinct roles are becoming less distinct. 

To put it another way, firms that once were not direct competitors now are emerging in such roles. This is not a new theme in the connectivity business. Encroachment has been happening for close to 20 years,  

according to Michael Porter.

To be sure, product demand also has shifted. People prefer to use mobile networks and devices for voice and messaging. But voice over IP also has destroyed the gross revenue and profit margin of international calling. App messaging has replaced carrier-sold text messaging. 

 

And now mobile platforms are being leveraged for private networking. Non-carrier 5G and networking offerings are gaining momentum, says Dan Bieler, Forrester principal analyst. 

“All major hyperscalers showcased (at Mobile World Congress) how they are getting more heavily involved in the networking  arena,” says Bieler. 

Google is working on network slicing on Android 12 for providing access to Google Cloud. 

Microsoft’s Azure for operators is a 5G overlay on Azure cloud WAN where Microsoft’s internet backbone carries the customers’ traffic.

Amazon Web Services is offering  private 5G solutions and cloud WAN and edge application offerings. 

“A new threat for telcos is on the horizon,” says Bieler. Importantly, “the lines are blurring between cloud computing and networking.”

Data Consumption Will be Added to Speed and Cost as Drivers of Fixed Network Access Platforms

In the past, access platforms have been differentiated based on speed and cost per passing or cost per customer. Going forward, they might also have to be differentiated based on total bandwidth consumption, in addition to speed and cost per customer or cost per passing. 

In the past, hybrid fiber coax has proven more economical as a fixed network platform than fiber to the home. Fixed wireless has been more affordable than FTTH. But that changes as consumption increases, AT&T argues. 

And many service providers--including cable TV companies who have used HFC--concede that, eventually, FTTH becomes an affordable way to keep boosting speeds beyond multi-gigabit ranges. 

For AT&T, once sustained data consumption per user approaches 250 gigabytes per billing period, FTTH economics get progressively better, since FTTH costs less to continually upgrade for higher speeds. 

source: AT&T 

As always, that assumption is based on AT&T’s total cost structure, the scale of its operations, capital structure and business model. Other internet service providers might have different options, for a longer period of time. 

That is especially true for some firms such as T-Mobile and Verizon that have no realistic opportunities to install FTTH nationwide, and whose prospects in the home broadband market are based on use of fixed wireless. 

Consumer willingness to pay, plus consumption profiles, do vary quite a lot. So for some, the issue is which segments of the market can be served by wireless, and which require FTTH. 

For T-Mobile and Verizon, the issue is how well, and how long, fixed wireless and mobile access platforms can  keep growing speeds and capacity fast enough to continue serving half the market. 

For cable operators the choices are how long to keep enhancing the HFC platform and when the switch to FTTH makes financial sense. 

AT&T passes about 57 million homes and considers about 50 million of those locations suitable--eventually--for FTTH. But that still leaves seven million locations where FTTH might not make sense. By 2025, AT&T expects to pass about 30 million consumer locations using FTTH, a bit less than 53 percent of total home locations. 

But even AT&T, which focuses on fiber for business customers, will see fixed wireless growth. AT&T cash flow from fixed network business customers is expected to rely heavily on cash flow from FTTx and fixed wireless services.

New Business Model Imperatives as Data Consumption Keeps Growing

For AT&T, once sustained data consumption per user approaches 250 gigabytes per billing period, FTTH economics get progressively better, since FTTH costs less to continually upgrade for higher speeds. 

source: AT&T 

As always, that assumption is based on AT&T’s total cost structure, the scale of its operations, capital structure and business model. Other internet service providers might have different options, for a longer period of time. 

That is especially true for some firms such as T-Mobile and Verizon that have no realistic opportunities to install FTTH nationwide, and whose prospects in the home broadband market are based on use of fixed wireless. 

Consumer willingness to pay, plus consumption profiles, do vary quite a lot. So for some, the issue is which segments of the market can be served by wireless, and which require FTTH. 

For T-Mobile and Verizon, the issue is how well, and how long, fixed wireless and mobile access platforms can  keep growing speeds and capacity fast enough to continue serving half the market. 

For cable operators the choices are how long to keep enhancing the HFC platform and when the switch to FTTH makes financial sense.

5G Will Not Drive the Next Great Wave of Innovation; Neither Will the Internet

These days it is hard to clearly delineate where 5G from edge computing begins and ends. The same thing might be said of 5G and the internet of things; or IoT and artificial intelligence or  machine learning; or 5G and AI. 

 

source: IET 

All that matters because it will be hard to “prove” whether it is 5G, edge computing, AI or IoT that has had some benefit for consumers, producers, firms or society. In many cases, it is the interworking of several technologies and services that create the benefit.  

source: Medium 

In more subtle ways we can argue that metaverse and blockchain--though perhaps independent variables, also will provide value for 5G, edge computing, AI and IoT that is hard to separate. 

It is the complex of technologies, not any single technology, that drives the wave of innovation. 

source: Medium 

The key takeaway is that we might now be in a transition of waves, where the growth drivers shift. Some proponents of 5G might argue that is the key innovation. Those in the computing industry will say it is cloud and edge computing. 

Others will point elsewhere, to widely-applied artificial intelligence. 

source: Visual Capitalist 

A key observation is that it is the complex of technologies--not a single driver--that underpins an innovation cycle. And, as always, we might be mistaken about the complex of technologies that fuel the next wave. 

Some of us have seen “robotics” on the “next wave” list for almost 50 years, and it has arguably not happened. So we might be wrong about the actual drivers of the next wave. 

source: The Geography of Transport Systems 

By definition, it will not be 5G, as we replace mobile networks every decade or so. Nor is the “internet” per se likely to continue as a driver.

People Might be Your Greatest Resource and Greatest Impediments as Well

Career resilience might be defined as the ability to recover from setbacks, adapt well to change, and keep going in the face of adversity. Strikingly, a survey by U.K. consultants Sarah Bond and Gillian Shapiro consultants suggests difficult relationships and organizational politics are paramount at work, respondents indicated. 

In other words, co-workers were the “biggest problems” women faced at work, causing the most setbacks. .

Fully 75 percent of respondents said that the biggest drain on their resilience reserves was “managing difficult people or office politics at work.” 

source: Bond, Shaprio, HBR 

It often is said that “people are our greatest resource.” It may also be the case that “people are the greatest sources of friction” within organizations.