Get ready for the next telecom revolution

The telecom industry has evolved rapidly over the past 25 years – triggered by the mobile revolution, expanding to multi-faceted services from communication to data to content to commerce to context, targeting multiple segments of human population and now branching rapidly into machines and IoT. All this has required fundamental changes to the prevailing IT model of the mid-90s in broadly three phases.

Phase I (till early 2000s): point solutions

Till the early 2000s, IT was delivered as point solutions for distinct functions like billing and CRM through disparate contracts that were mainly procurement oriented. Hence, telcos ended up with a collection of systems that did not necessarily talk to each other. Furthermore, the hardware and software purchases were handled independent of each other, eventually leading to huge teething troubles even though the telcos were still pretty small.

Typically, these resulted in large amounts of revenue losses and it was almost impossible to get one combined meeting where the database, hardware, COTS software and implementation vendors would sit around the same table to solve problems.

Phase II (early 2000s to mid 2010s): outcome oriented outsourcing

Such challenges, coupled with impending massive scale-up for the industry, presented an opportunity for a globally unprecedented innovation in the IT model for the industry. For the first time ever, an “outcome oriented” outsourcing model was invented and implemented - covering all hardware, software and services from a single strategic partner.

The prevailing global model was for firms in the western world to outsource to countries like India, primarily for “run” work that leveraged labor arbitrage for RoI. Furthermore, different IT providers were used for software and infrastructure layers – leading to finger pointing and dilution of accountability. It was for the first time that Indian telcos outsourced entire IT (both “build” and “run”) to single IT providers.

The scope was kept extremely flexible with a rolling annual IT plan and 3-year roadmap forming the basis for end-to-end architecture evolution and implementation schedules. This replaced the traditional “new project”, “change request” and “refresh/upgrade” paradigms.

Good quality IT talent needed for such large IT platforms was difficult to recruit into telcos. With such comprehensive partnerships, talent buildup now shifted to the IT partners. The telco’s IT departments were kept at a skeletal level, primarily focusing on business engagement, architecture and governance.

Operational robustness for large scale growth coupled with building blocks of ERP, billing, CRM, online etc. started kicking in to build the basic foundation. Differentiating capabilities then came in around business intelligence, analytics, revenue assurance and security for segmentation, targeting, leakage prevention and tight compliances. Data and content capabilities with supporting APIs for app-oriented services began.

IT infrastructure evolved from small server rooms into tier-3 data centers with disaster recovery, business continuity and redundant (MPLS and undersea cable) networks.

Telcos could now freely expand their businesses from mobile focused to full service (mobile, fixed line, broadband, TV, content, hosting, m-wallets, etc.) across multiple segments (consumer, SMB, enterprise, international, etc.) and across multiple geographies (expansion circles in India or other countries), without getting into the nitty gritty of IT requirements for such diversification.

The IT cost curve was smoothened out by linking costs to business metrics (such as % of revenue or cost/call-centre call). The cost curve was not subject to spikes due to new projects, change requests, refresh or transformation. Furthermore, a business metric driven cost model also brought along built-in economies of scale. Consequently, rapid industry growth meant declining IT costs on a percentage basis, thus contributing directly to profitability.

The long tenure of these arrangements also meant that heavy investments in hardware and COTS applications could be made by the IT partner at an early stage of the telco’s growth cycle. This obviated or minimised expensive and cumbersome transformation programs. Thus, massive growth of the telcos (ergo growth in business metrics) resulted in meaningful revenues to the IT partner, in spite of built-in economies of scale.

Hence, it was a win-win for the telcos and for the IT partner.

However, such a model came with its slew of challenges that built up over time. Partner governance required a much higher level of sophistication and required a balancing act for both parties. Architecture debates needed to be resolved to converge on agreed roadmaps.

Speed of implementation started to slow down toward the latter years since a hyper-competitive industry brought forth higher competitive pressures and the scale-up problem was replaced by the speed challenge. However, the biggest disruptor of all was the rise of internet technologies that brought along with it a new style of IT that is agile, mobile, smart and cloud based.

Phase III (early 2010s onwards): e2i blends in

The “e2i” stand for shift in IT methodology from “enterprise to internet” styles. “Enterprise” style IT is getting replaced by “internet” style technologies that leverage open source and deploy agile methods of development for speed and nimbleness (typically used by OTT players).

Traditional IT talent pool that configured and deployed COTS packages is now being replaced by sharp coders that were keen to get “wired in” for rolling out capabilities every two weeks through scrums and sprint cycles.

This also needs a fundamental shift in the way “requirements gathering” happens wherein conference room huddles and white boards start replacing large clunky requirements (SOW) documents that feed into waterfall (slow) cycles. Everything moves to the cloud at infrastructure, platform and software layers (IaaS, PaaS, SaaS). The role of the traditional System Integrator (SI), which is on-premise data centre oriented, now gets blended in with the new internet style of IT.

Telcos have started bringing back some portions of IT through in-house engineering teams. The industry is now in the phase III of IT growth which is a blend of outsourced and in sourced models, especially with industry consolidation. Importantly, IT is no longer just for “support” capabilities like billing, ERP, and CRM but more so for “product” capabilities like content, commerce, payments, and IoT—things that directly generate digital revenues.

The talent pool is a mix of systems and configuration types with deep coding software developers/engineers led by leaders with both CIO and CTO capabilities. The partner ecosystem is a mix of traditional large IT names with new age internet giants. Governance and partnership models are going back to multi-party ecosystems with more pointed and targeted relationships.

With all this, speed and agility are becoming the name of the game, aided especially with new technologies like AI, machine learning, block chain, quantum computing and so forth.

Stay tuned: phase IV is probably just around the corner!

- Dr. Jai Menon

-- The author is mentor and a global technology leader with over three decades of experience across US, Europe, Asia and Africa.