Network infrastructure is the basis for all funding of telco activities; as such, telcos must not only keep the cash cow alive, but also strengthen it. Management of network infrastructure is easily belittled as a subject for engineering nerds — but it must be treated as a key strategic matter.
Outsourcing the management of or sharing network infrastructure delivers many benefits, and we expect telcos to do this more and more in the years ahead. Telcos need to balance the simultaneous requirements of cost control, enhanced business flexibility, and innovation to incorporate the right approach to external network infrastructure management into their future strategies. Equipment vendors, meanwhile, must adjust their business to keep up and partner with traditional IT services providers.
Many more telcos are moving toward sharing or outsourcing some or all of their network assets and operations to partners or suppliers, becoming “telcos without networks.” This provides an opportunity for some telcos to shift their focus and resources to:
Cost control and transparency. The decision to share or outsource network assets and their operation is primarily driven by financial needs, in particular to bring the total cost of ownership down, spread expenditures over time, and allocate costs in a more transparent manner.
A better customer experience. Increases in data traffic require telcos to enhance their network and service delivery infrastructures and improve network coverage in order to maintain the quality of the customer experience. Moreover, telcos face regulatory requirements for improved rural network coverage, which can be more readily satisfied by network outsourcing.
Product strategists in various industries tend to dismiss telcos' role in service innovation, focusing instead on disruptors such as Google and Apple. It is true that new entrants and over-the-top (OTT) players have bypassed carriers, reducing their role to providing bit pipes.
Product strategists at telcos are suffering from what we are calling “bit pipe syndrome.” Didier Lombard, the former CEO of France Telecom, summed this up well when he declared back in 2007, "I am not building freeways for Californian cars."
Since then, many observers have claimed that telcos will die if they do not reinvent their business models, leveraging their networks as a service. This case is overstated: Reports of operators' deaths are exaggerated.
No doubt telcos are increasingly being commoditized to the point that they will become utilities, but there is no shame in monetizing networks — carriers' bread and butter for a few more years. Fundamental connectivity remains a valuable service — all the more if product strategists focus on gaining more pricing power and delivering more segmented offerings, either on their own or with new strategic partners.
When it comes to product innovation, operators still have key assets to leverage — particularly their billing capabilities — to become trusted partners for consumers and third parties. Some global carriers have a strong presence in emerging countries, and they will have more sway in shaping the types of content services that the world consumes.
Product strategists at operators have the assets to continue to differentiate their offerings and innovate in a disrupted telecom ecosystem. I am not saying this is not challenging and extremely difficult, but here are some approaches that could work:
It’s easy to bash incumbent telcos, to count them as being among the losers in the digital revolution. Cloud services players are taking business from telcos in the storage and server capacity space. Over-the-top providers are free-riding on the telco infrastructure. Software firms are eating into the communication business. Regulators are pressing for further price reductions. And to top this scenario, telcos are continuing to undercut each other in price wars.
During a round of executive discussions with Forrester, Orange Business Services (OBS) has shown that against these odds, it keeps a pretty even keel regarding the most hyped topics in ICT, most notably cloud and mobility. OBS is selective in its cloud offerings, focusing on UCaaS and IaaS. UCaaS is a natural extension of its communication business and thus falls into OBS’ home turf. All telcos should see communication services from the cloud as a natural extension of what they have always done.
OBS’ drive into IaaS, meanwhile, looks like a less convincing pitch. Its IaaS offering essentially comprises a virtual data centre offering with virtual firewalls and load balancing. The question is: How OBS can compete against the dominant cloud players in the storage and server space? In the short term, such an approach is conceivable. However, OBS will need to provide a much broader range of virtual infrastructure choices to avoid slipping into a low-margin market segment.