We’ve had the SDN buzz and the NFV buzz and now we seem to be getting the automation buzz. It’s not quite hype yet, because everyone is trying to come to terms with just what “automation” is, but we’re surely headed there. Will it become reality? That depends on the benefits it can produce. I mentioned in a previous blog that Huawei’s comment about cutting network operations staff by 90% wouldn’t be the revolution it seems, and that’s true with automation as well. The value of automation in cutting costs depends on its scope, but also whether the “cost” has much of a displaceable human component.
Over the last 30 years, operators have cut their headcounts significantly, dropping the notion of dialing the operator, going to self-install for many services, and using automated attendant systems and offshore workers to reduce support headcount. Telecommunications employment peaked in 2001, and since then has declined every year. Today, it’s at about 75% of long-term historical levels, a result of a combination of consolidation, automation, and outsourcing. This makes technical operations tasks a major contributor to direct employee headcount, but it complicates the way that operations expenses (opex) can be reduced.
Let’s start with network operations, which is what many vendors think of as “opex”. In fact, opex in a financial sense is just about everything that’s not capex, in terms of cost. You have to first dig out of “opex” the stuff that’s really related to service and network processes, which I’ve called “process opex”. This will account for about 29 cents of every revenue dollar this year. It would be very difficult to assign technology or automation any role in managing things outside process opex. What can be done there depends on what part of the cost picture you’re talking about.
As I pointed out in that past blog, directly attributable network operations costs represent only about four cents of each revenue dollar today, which is about 40% the contribution of 2001. Interestingly, since 2014 the directly attributable data center operations costs have run just a bit higher, but they are growing more slowly. Between 2014 and 2018, data center ops costs have gone up about 0.4 cents (less than half a cent). In the same period, network operations costs have gone up by almost a full cent (that has plateaued since 2016).
The point here is that we have a cost growth risk in net ops, a risk that’s largely associated with the increased complexity of modern IP networks and the growth in consumer broadband. Services like SDN and NFV that could increase the complexity of networks while reducing capital costs, could end up creating more cost than benefit if they reignite the growth of net ops costs. That means that the goal of automation at the network operations level is primarily to sustain current costs as service and network complexity increase.
The next cost area we need to look at is customer technical support. This cost has gone from about 2 cents per revenue dollar 20 years ago, to about 5 cents today, despite the fact that automated self-help systems, offshoring, and self-installs have become widespread in that period. What operators are finding is that they have reached the limit of self-help and efficiency improvements in support response; they now need to reduce incidents.
Reducing support incidents means reducing service problems that impact the user. Automation can help with that, but only if it can produce a remedy within the “visibility time limit”, the interval between the user notices something wrong and takes action that commits the operator to a support cost. Operators know that in many cases, the best way to reduce incidents is redundancy, resiliency, and over-capacity applied almost at the resource level. This is a bit more like “autonomous” or “self-healing” than “automated” or “AI/analytics”.
The biggest process opex item is the most problematic; customer acquisition and retention. This accounts for about 12 cents of every revenue dollar today, and it’s doubled since 2000. What caused this? Competition. What’s the answer to competition? Differentiation. The problem we have now, according to operators, is that we’re limited in our ability to respond to service problems in a way that ensures the customer doesn’t seek another provider, and limited in the ways we can make a service stand out enough to be a market leader.
The best differentiation is a differentiated service, something that is a lot better than the competitors can offer. Next best is a cheaper service that’s still profitable. Automation to allow for service agility and at the same time stable opex would be very helpful in this space, but while it’s probably a necessary condition for service-based differentiation, it’s not a sufficient condition. Operators are not used to marketing services, or much of anything. Today they use pricing, smartphones (that the makers market), and bundled content to market mobile services, and they market consumer broadband on maximum speed. Absent a strategy to exploit service features at the marketing level, automation isn’t going to do much.
Across all of this is the scope-of-impact problem. In order for automation to improve opex overall, it has to automate the service processes fully, which means that it has to cross the traditional border between OSS/BSS and the CIO organization, and NMS/NOC and the COO. This border has been difficult for operators to negotiate, particularly because new technology tends to come out of the CTO group, and because the CTO has greater influence on the COO/operations side than the data center/CIO side. Some operators have established high-level teams to try to build a transformation strategy that spans this border, with mixed success.
Automation, optimally applied, could save about 5 cents of every revenue dollar in 2018, and that improves about a cent per year for the next three years. However, almost half of that savings would have to come from customer acquisition/retention costs, meaning that it is held hostage both to the integration of service and network operations automation, and to the ability of network operators to design and market useful service features.
The real difference between “hype” and whatever you’d like to call “not-hype” is whether the stories can actually lead to a business case, which is the only way anything is going to be transformed by technology. Until we look at just what operators really spend, and at how “automation” can influence that spending, and at what else would have to be done to exploit automation, we’re not going to make a lot of progress to a fully transformed and revolutionary future.
However…the ROI on service lifecycle automation is in itself enough to justify the relatively low investment needed to exploit it. Automation may not transform the practice of networking, but it can still make a difference. The low apple here, that five cents in savings that might be achieved, might be high enough to get things started.
