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The telecom business isn't getting any easier; that much is clear. Globally, operators continue to face declining profit per bit, as they continue to seek new revenue from outside their traditional service areas. Whether they invest in international or out-of-region communications companies, or they acquire content and advertising companies, these strategies demonstrate that connectivity isn't the kind of service it used to be.
The current problem for operators is profit per bit, which is created by a squeeze on the revenue side that arises from competition and rising costs. The squeeze is greatest in wireline services, but it's now even affecting wireless.
A look at at midyear 2018 telecom trends finds telecom operators focused on a number of fronts. These include investing in business opportunities outside their traditional services and geographies, increasing network automation to reduce legacy manual processes, lowering costs to boost profit per bit, refocusing on open source approaches to legacy networking and questioning a complete jump to 5G wireless because the business case is unclear.
Thinking outside the box on profit per bit
Increased profit per bit comes with increased revenue. It's clear most operators looking for new revenue are looking outside their traditional services and geography. In the U.S., 2018 telecom trends show telecom and cable companies have been buying up content and online advertising companies. And in other geographies, including Europe, they've been buying operators in emerging markets. Both approaches have potential, as well as potential risks.
The benefit of gaining a position in content, advertising or both is obvious. Over-the-top providers have been the envy of the telecom companies, reaping large margins and seeming to capture the leading edge of internet-driven opportunity. The problem is the limited number of high-value content providers or ad companies to buy. That's particularly true for advertising, which data suggests is a zero-sum game or even less. Ad revenue isn't growing much, either -- if at all. So, online ads are competing with other ad sources -- primarily traditional television.
The big hope with online ads is the increase in content consumption and the growth of streaming video will eventually make linear TV a far less attractive venue to place ads. If the whole linear TV ad budget shifted to streaming content and online services, the result would be a global windfall for companies that owned key ad-placement properties -- like operators that had the foresight to buy them.
Lowering costs to increase profit per bit
With challenges on the revenue side, 2018 telecom trends indicate many operators are turning to the idea of improving profit per bit by lowering costs. Operators have been gradually working to improve their operational efficiency, and in many geographies, the effects can already be seen in lower Opex and head count. Initiatives like network functions virtualization (NFV) and white box switching platforms have been launched to reduce Capex, but these have not yet paid off to a significant extent.
While cost reduction has worked for operators, technology changes have driven only a small part of it. To reduce Capex, operators have increasingly demanded steep discounts on network equipment or shifted to a lower-cost supplier. Operational cost improvements have come more through restructuring installation and support to improve customer self-installation and support portals. Most operators have taken these basic measures as far as they can at this point, which means the next step will require active operations systems automation.
Focus on zero-touch automation
Automated service lifecycle management is essential to operators, and technologies like software-defined networking (SDN), NFV and white box switching can reduce Capex, but complicate operations. To make sure operators realize full Capex reduction benefits, rather than have them swept aside by operations cost increases, they need to automate everything that creates incremental network complexity by adopting these new technologies.
From the beginning, standards bodies defining new network technologies like SDN and NFV have considered operations automation out of scope. We're now seeing telecom and cable companies pursue operations automation, which is usually called zero-touch automation, to reflect the goal of eliminating manual intervention altogether.
The problem zero-touch automation has presented for operators is a lack of scope, combined with a lack of urgency. Many initiatives automate a specific piece of a deployment process -- NFV, for example, has automated function deployment -- but few address the entire lifecycle, which means no zero-touch automation.
Any current, active initiative has a mandate to automate all service lifecycle processes, and without that, it's difficult to reduce -- much less eliminate -- manual-intervention operations cost.
Telecom trends reveal open source focus to reduce cost
The problem of speed and urgency may be the most difficult to solve. Standards bodies take years to act. SDN and NFV work has required four years to achieve even a stable reference for a workable set of features. Zero-touch automation is only getting started, which means it could take until 2022 to mature. Many operators can't wait.
This adds up to perhaps the most dramatic shift in telecom and cable-company thinking. Rather than look for things like virtual network functions and software-controlled forwarding, why not focus on traditional switching and routing that uses completely open devices, commodity white box hardware and open source software? AT&T has been a pioneer in contributing an open source, white box switch operating system -- DANOS, under the Linux Foundation -- and the Open Networking Foundation has launched a similar initiative, called Stratum.
Open source technology has been the recent focus of operators on the cost-reduction side. They want open source SDN, NFV and now zero-touch automation, as well as open source software for white box switches. Rather than take a risk on a new technology like SDN or NFV in network-building, the thinking is to use an open form of legacy technology. Via the open source initiatives, operators could then gradually enhance baseline switching and routing features, even eventually adding in SDN and NFV.
The 5G influence
Cutting across all of this is 5G wireless technology. While it's been traditional in wireless for operators to jump on a new generation of technology simply because it's new, operators have been questioning the real 5G business case. This isn't likely to stall adoption completely, but it might mean some operators will go only so far as the 5G Non-Standalone radio network model, which is supporting 5G networks with existing 4G infrastructure. Some might only go as far as using 5G millimeter wave in conjunction with fiber to the node as a step beyond DSL.
5G affects all of the aforementioned telecom trends. Most credible content and advertising services are linked to consumer content consumption, which 5G could enhance. Managing complex content and service relationships created by 5G could tax traditional service management tools. While 5G could begin to frame the answer to the shifting picture of telecom services and infrastructure, don't expect that to be easy or happen quickly; 2019 is another day.