The industry may stop being just communication monoliths in 2021. Instead, they could be seen dabbling more into new and orthogonal areas. Here’s a look into the keyhole.
By Pratima Harigunani
The good thing about snow is that it is easy to see footprints on the ground. The year 2020 was quite a snowfall. While some enterprises are still busy mowing truckloads out of their paths, some are treading softly into new directions. They are, however, leaving some marks as cues worth following. And some of these marks could turn into cornerstones that will shape the industry in a new way ahead.
Nudged by cloud rivals and partners, telecom players could be deploying their vast infrastructure strengths as CSPs and cloud-vendors of a new stripe.
If you are still wondering what fairy-feet we are talking about, do not worry. You have seen these prints already. From the physical layers morphing into abstraction in the form of software-defined networking (SDN), software-defined wide-area networks (SD-WAN), etc; to the big drum-roll of edge computing and 5G; we have caught a good glimpse of how technology is redefining the capabilities of this industry. These forces will gain even more traction now.
But what would be more interesting to watch is how the very model of the industry and the revenue-orientation of telco players will assume new contours. On one hand, nudged by cloud rivals and partners, telecom players could be deploying their vast infrastructure strengths as communication service providers (CSPs) and cloud-vendors of a new stripe. On the other side, the rise of over the top (OTT) and the post-Netflix world customer will pull telcos to explore the content service industry with more focus and aggression.
Albeit, the way tables turned for some companies in 2020 with new geopolitical headwinds; it is hard to predict the plot of geographical strategies and supply-chains for the next year. It would be worth watching for sure. So would be the influx of artificial intelligence (AI), automation, and new technologies and standards. Telcos may turn into platforms. They may go to a changing-room and come out in a cloud outfit. They may shake hands with their arch-rivals and tech-giants. Or they may bring their own pony in the game.
What’s not a ‘may-be’ is the fact that the customer of a typical telco has changed. That’s the big spot that every telco would be jockeying for. Whether as a provider of cloud services or as a first-mover in 5G services, be it as a mint-fresh OTT platform or as an edge-partner for low-latency apps, the telecom sector winners of the new world would also be all about picking the right customer and serving them with a lot of confidence.
Limping would not do. Jumping too many hoops would not help either. It is all about taking the right foot forward. And listening to the soft snow as it glides down to new spots. Happy stepping ahead!
The rise of OTT and the post-Netflix world customer will pull telcos to explore the content service industry with more focus and aggression.
The 10 trends to look out for
The trends for telcos and the telecom sector can be sliced into two distinct pipes – the ‘how’ and the ‘why’ parts. Let’s get into the ‘how’ aspect first and close it with the ‘why’.
Does one need to see a big backyard of wires and metal when one is sharpening strategy to face competition in an industry that is still – a lot- about speed? Not really! That explains why everything is turning into ‘software’.
Telcos have seen the underground technology behind their networks and fabric change a lot in the last few years. From one alphabet soup to another, the industry has seen software trickling in and making deep roots in even those parts of the hardware-side which were impossible to consider soft all these years. We had SDN, SD-WAN, network function virtualization (NFV), virtual network function (VFN), and network-as-a-service (NaaS) in the network aspects that came in one after another.
The intelligence, programmability, and flexibility aspects have grown stronger and stronger with the influx of software avatars of the erstwhile hard-wired physical components of the telco world. Intent-based networking, automation of networking management, software control for routers and switches, and a lot more is happening here. This trend of abstraction and automation will continue and gain new grounds as the industry seeks new markets and service-capabilities. Most of the new opportunities that the telcos are exploring need very high levels of agility, operational simplicity, and intelligence-empowered services.
The level of competition is also getting ruthless with new rivals coming into the fray. That’s why and where software-ization will accelerate here, equipping players with just the quick-footedness and sure-footedness they need now. The currents of that direction are visible with the new-found buzz around the secure access service edge (SASE). The separation of control and management planes of network and better/fast provisioning for a network still exist as key enablers for many propositions that telcos want to nail.
Most of the new opportunities that the telcos are exploring need very high levels of agility, operational simplicity and intelligence-empowered services.
How is Software Helping New-ware?
AT&T has shared recently how its investments into NFV and SDN were instrumental in helping the company match the demand of rising Internet traffic in the COVID-19-pandemic period. What worked was building the network on software and open hardware specifications which equips it to be ready for just about anything. Interestingly, its goal is to virtualize 75 percent of its network functions by 2020.
In another part of the atlas, German enterprises have been spotted to see SDN and NFV technologies as those that improve integration, automation, orchestration, and management of network resources and processes (as per a report from research and advisory firm Information Services Group).
What is happening is that SDN technologies help enterprises with quick response to customer inquiries and with the rapid provision of new services on the network, the report adds. These tools have also been reported for improved customer satisfaction while increasing sales. They are letting companies experiment with innovative technologies around intent-based networks, artificial intelligence, rapid hot-spot provisioning, and data flow allowance.
Telcos are finding them useful for simplifying the management and planning of networks and integrating them with other IT initiatives.
Simple network provisioning, dependable industry standards, easy interoperability among various platforms, high-grade inter-carrier quality of service (QoS), and intelligence will be paramount factors as Telco players embrace more and more software ahead. No wonder, as per estimates from IDC, the worldwide data center SDN market was augured to be worth more than USD 12 billion by 2022. And the SD-WAN infrastructure market expected to hit USD 4.5 billion by 2022. The NaaS market, according to GMInsights, is expected to touch USD 50 Billion by 2025.
5G is now commercially available in 24 markets worldwide and almost 79 operators across 39 markets have announced plans to launch mobile services.
2 The 5G
Of course, it sounded like ‘all sizzle and no steak’ for a lot of industry-watchers; but 5G is going to have a slow, yet deep, influence on the industry. It could be the long end of the rope the players need for creating more industry-relevant applications, providing enriched services, and never-before agility. 5G can help many players with just the horsepower they need for expanding their markets and targeting new segments.
By 2025, 5G can account for 20% of global connections, and operators are expected to invest around USD 1.1 trillion worldwide between 2020 and 2025 in the mobile capex. As much as 80% of this chunk will be in 5G networks, as per the GSMA Mobile Economy Report 2020. In fact, mobile 5G is now commercially available from 46 operators in 24 markets worldwide and almost 79 operators across 39 markets have announced plans to launch mobile services. We are looking at a big field – 1.8 billion 5G connections by 2025 – with a big slice towards Asia and the US here.
What telcos actually draw from this leap is the emergence of new value-added cases due to low latency and high capacity.
As per a McKinney report in 2019 on ‘Cutting through the 5G Hype’, it was seen that operators were expecting positive business case, and expected rollout at scale to take until 2022. What jumps out here is how most telcos see 5G as an opportunity to cement, gain, or regain network leadership – around half viewed such competitive positioning as the number-one priority for 5G. The next priority was customer experience and then came the promise of better capacity. As to 5G for fixed wireless access, 22% of operators identified this as their first or second priority.
The players have a lot to contend with in terms of way-forward issues like the densification needed in many of the networks to leverage the higher frequencies, new spectrum acquisition costs, spectrum-related expenses, refarming efforts, etc. Just 11% saw 5G reducing industry capital expense. Many were fraught with worry about site costs (65%) and maintenance costs (50%), increase in IT costs (40%). Of course, there were 22% that saw 5G as an opportunity to reduce these costs. About a third of the operators that were surveyed here had 5G-pilot strategies in place with a lot of work already done on shaping their technology strategies. Looks like, large-scale deployment of 5G is not an entirely farfetched idea as 92% of respondents have been planning deployment by 2022.
Hyper-scalers are considering tying up with telcos for this closer-to-the-data-source advantage which is critical for government licenses and approvals.
But to do this properly, telcos will have to confront network evolution investments to meet the demands of the 5G era and to diversify their revenue streams for growth beyond core telecoms services – as per the GSMA report. Do not ignore the crucial parts – Capex will need to be spent more selectively, particularly for small cells. And infrastructure competition turns harder, not easier.
3 AI and IoT
It is impossible to talk about the future of this industry and not mention some new technology-tipping points. Intelligence would make even bigger inroads into networks and data aspects of the industry – and with more swagger.
Armed with machine learning (ML) advanced and real-time analytics, deep learning algorithms, and robotics many smart players would be able to reduce a lot of latency, delays, cost burdens and overlaps in their services. They would have the precision to personalize their services. With the internet of things (IoT), the networks and routers might turn into smart ninjas in their own right – arming telcos with new powers of predictive maintenance, uptime, robotic process automation (RPA), and optimization.
With artificial intelligence (AI), the telcos are building self-optimizing networks (SONs) and ways to fix network and traffic anomalies before they pop as red flags. AI is also helping to bring in really smart, and intuitive, virtual conversational assistants for quick and better customer support. According to a Juniper Research report ‘Chatbots: Retail, eCommerce, banking and healthcare 2017-2022’, virtual assistants have been estimated to chop away almost USD 8 billion annually in 2022. Reminds you of Vodafone’s chatbot TOBi and Nokia’s MIKA here?
According to IDC, 63.5% of operators are investing in AI systems for infrastructure improvements. Technavio had predicted that the global telecom IoT market would be posting a CAGR of more than 42% by 2020. The GSMA Mobile Economy Report, 2020 suggests that enterprise IoT connections are set to overtake consumers in 2024 and it will almost triple between 2019 and 2025, and reach 13.3 billion. This will account for over half of all IoT connections in 2025.
Tapping data from far-off corners through intelligent and connected devices, networks, geo-location points, and service nodes makes a Telco player more than a voice-packet. This data can have immense value in terms of insights or third-party services.
Even the most formidable Cloud players of today were, once, just sellers of books or makers of search engines or software. But they used their infrastructure backyards and the efficiencies they created here as services worth selling. And look where they are! Telcos and enterprises in the telecom sector have a similar advantage if they can spin their infrastructure muscle with the value of customer-proximity and regional-stronghold to approach this market.
After all, in the past too, telcos have dealt well with technologies that had a cannibalization threat – like voiceover-IP (VoIP), public switched telephone network (PSTN), and standard internet protocol (IP) networks.
Telcos need to push past traditional footholds of data services and network connectivity for their enterprise customers. They already have the winning cards up their sleeve – cloud brokerage capabilities, well-sprawled infrastructure, local data integrity assurance, etc. They also have a large distribution in terms of CO and facilities – this is, often, bigger than the sprawl of any hyper-scale cloud provider. As long as they can keep cracking the areas of cloud distribution models, adequate repeatability, production-grade solutions, solid ecosystem play, pricing parts, integration, fragmentation, and migration – they can rub shoulders with the top-tier cloud providers quite well.
They can do so with consolidation-moves and partnerships too. Like the ones done in the early stages by NTT (Dimension Data), Centurylink (Savvis), Verizon (Terremark), etc., or some recent handshakes done by AT&T, Verizon, Vodafone, Telefonica with Cloud-brigade payers. The shift towards the cloud will expand its portfolio and profitability. They have a lot of options here – repurpose existing network stacks into cloud-related services, using infrastructure as data center hosting stack, move up the cloud stack, offer network optimization and security as value-additions for other cloud solutions, or deliver business services integrated over the network layer or service-enabler parts for third parties.
With artificial intelligence, the telcos are building self-optimizing networks and ways to fix network and traffic anomalies before they pop as red flags.
Telcos also serve a big segment that is of a different scale and complexity. Yes, the enterprise customer. This is where the fusion of 5G and edge computing can create unprecedented services for enterprises looking for low-latency applications in their factories and remote set-ups. This works great for providing latency-sensitive and throughput-intensive applications that can be run close to end-users.
Note that total mobile revenues stood at USD 1.03 trillion in 2019 and revenue is expected to rise at around 1% per year till 2025, predominantly because of growing revenues in enterprise IoT segments and new 5G services.
That’s why telcos need to look at Edge from a big business perspective because growth and revenues may slow down in other areas. They can explore this through micro-data centers, customer-adjacent network stacks, or cell-sites. IDC defines the telco edge as the one that is located typically near mobile cell sites and/or regional/local data centers.
So by distributing the compute and storage resources into the telco edge, the amount of IP traffic flowing back into cloud data centers can be chopped in a big way. A recent IDC-Asia-Pacific Edge report points how CSPs in Asia-Pacific are actively pursuing the telco cloud/telco edge – Telstra, VHA, Bharti Airtel, Reliance Jio, Vodafone Idea, Rakuten, SK Telecom, KT, China Mobile, China Unicom, and China Telecom.
If you have noticed how AWS-Bharti Airtel or Google-Jio moved closer to each other, it is all about the respective strengths of each side. Interestingly, even hyper-scalers are considering tying up with telcos for this closer-to-the-data-source advantage which is critical for government licenses and approvals. They are also important for telco-grade backhaul and fiber. Infrastructure and proximity – that’s where telcos already, well have an ‘edge’.
In the last few years, a lot of debate and activism emerged on the environmental impact side of the telecom industry. Establishing new towers with green and health-consciousness, expanding infrastructure and user-health aspects are some areas where telcos have to, willy-nilly, put in more attention and visible effort. It has been augured that the mobile industry, and the ICT sector, will be charting a pathway to net-zero GHG emissions by 2050.
In fact, telcos have a big role in enabling reduced greenhouse gas (GHG) emissions by enabling digital solutions in transport, travel, smart traffic management, smart lighting, parking, logistics, energy management systems, precision agriculture, connected health, and the sharing economy solutions.
Incidentally, in 2019 a group of operators – representing more than two-thirds of mobile connections globally – committed to disclosing climate impacts, energy use, and GHG emissions. More efforts in and alignment with science-based targets initiative (SBTi) are good signs. For instance, AT&T has decided to harness the power of mobile technology to enable GHG emissions reductions that are 10 times greater than its own by 2025. Or look at Telefonica, which by 2025, aims that for each ton of CO2 it emits, it will avoid 10 tons of CO2 through its services.
So far, roughly, the mobile sector’s annual emissions total up to 220 MtCO2e, which is about 0.4% of the total global emissions.
Many players are considering partnering with or creating their own versions of, over top (OTT) content platforms. As the main leg of the last-mile part of streaming to a viewer, telcos wield great power and possibility in entering this market. They are the ones who are selling affordable data-packages.
They are the ones who are bundling content and entertainment in their offerings. Why not explore more than a foot in this door?
This also makes more sense since telcos have borne the costs of massive network upgrades or the ‘top’ in over-the-top. OTT players have leveraged the infrastructure that they didn’t pay for – in most cases. Telcos have more than a business case here when they want to throw the new hat in the ring.
But do remember some caveats. As the GSMA Mobile Economy Report 2020 warns, the contribution of non-telecoms services is growing slowly. It would be a challenge for non-telecom revenue to grow fast enough to offset declines in core service revenues. For many operators, revenue growth as a percentage is in the low single digits, and Pay TV, media, IoT, enterprise solutions, and the broader array of digital services still only account for just 10-20% share.
With artificial intelligence, the telcos are building self-optimizing networks and ways to fix network and traffic anomalies before they pop as red flags.
The binge-watch-trigger-happy customer of the modern age has been weaned on the ‘right now’, ‘swipe-swipe-swipe’, and ‘on tap’ levels of any service. What digitization started has been taken to a crescendo with the big buffet of content options that users are now habitual of. Anything less than a big pack of cards is just not enough.
Providers would need to up their ante on many planks now – they would have to ensure that users are getting constant and immediate options that just never stop pouring in. User-centric service, speed, and a burst of choices would be stapled parts of any communication player now. The old game of ARPUs would, as a consequence, change to new forms of margins and challenges like a wafer-thin level of loyalty. Players would always be on slippery ice as they scramble to serve this finger-fickle customer.
9 Regulations and changing norms
Needless to say, the big turning points for any model or shift explained above would be decided by concerns around privacy, data usage, and trust. The way regulators decide policies and paths for industry standards, for competition, for consolidation, for data sovereignty, for customer privacy, for fair use of data – all of this and more can be a big force in how telcos move ahead.
Making capital investments, tying up new partnerships, or rolling out new business models – no matter what a telco does, it would have to be cognizant of what the regulator says or would say in that space.
10 Geo-political ripples
The ‘why’ of any telecom player’s model and existence would definitely find ramifications coming from how geopolitics works. What we saw with Huawei and Chinese equipment manufacturers in 2020 would be quite a reference to imagine how important political dynamics are – especially for a top-bracket, high-scale, and essential-service industry like this.
So that’s it – some of these trends would disappear as soft marks and some would etch themselves strongly as thumb-prints of a unique strategy.
As we step into 2021, we will notice that no matter how unique each trend is, these snowflakes will come together to create a new whiteboard for the telecom industry. Let’s turn the calendars now.