There is always a risk in using buzzwords or catch-phrases. They tend to propagate through the market, losing contact with reality along the way. We hear, for example, that operators are “bullish” on transformation but don’t follow through. Is that a fair comment or is there something deeper going on. Four global operators have recently shared transformation issues with me, and as long as I don’t identify the operators, they’re happy to let me address them here.
The first issue, one all four operators mentioned, was everyone forgets we’re network operators. You and I have been reading stories about transformation for half-a-decade, and most of them reduce to things like “why not just adopt the OTT (or cloud provider) business model?” Answer: Because network operators aren’t OTTs or cloud providers. Most people who advocate this kind of transformation aren’t really suggesting that operators become OTTs, only that they rely on profits from OTT services.
Operators cannot run network services at a loss and then try to make it up with profitable OTT services. The incremental cost they’d have to assess to overcome the losses in network services would make their OTT services non-competitive. The axiom for the network operator is now, and will always be, that network services must be at least marginally profitable no matter what other services they may offer.
In truth, what operators think of as “transformation” or “digital transformation” is really “network service transformation”. They know they can offer OTT services; some like Verizon have bought OTT players. They also know that they have to make network services into something beyond a boat anchor on their bottom line. So let’s stop telling them to be OTTs and focus on the actual goal of transformation to an operator.
The second issue was also universally mentioned. Doesn’t anyone understand the notion of undepreciated assets? Network infrastructure has a financial useful life of between 5 and 20 years. If a project comes along that requires a hundred million dollars’ worth of undepreciated equipment be written off, the CFO will say the project’s cost has to be increased by that hundred million. Few infrastructure project business cases would survive that added cost.
Remember the old song “If I knew then…What I know now…”? There are surely a number of network investments that operators (and users) regret, but just because the right answer comes along later down the road, doesn’t mean you get a do-over. Technology revolution in network infrastructure, folks, is not possible. That means that proponents of this or that network transformation strategy have to pursue an evolution-driven business case. That’s problematic because the early deployments don’t offer much benefit because most of the infrastructure can’t be impacted for depreciation reasons.
Issue number three was cited by three of the four operators. Saving five, ten, or even twenty-five percent of capex doesn’t justify a major technology shift. I’ve noted in prior blogs that a group of operators at an industry event told me that 25% wasn’t enough for NFV to save in capex—they could get that by “beating up Huawei on price.” One reason a big savings is needed is that new technology means redoing operations practices, and that may end up killing a lot of the benefit. Operators have said publicly that NFV is way more complicated, and managing complexity is more expensive. Another reason is risk of failure. We have no global networks based on SDN or NFV, which means that someone who decides to risk it all on one of those technologies has little defense if it fails.
Why is AT&T deploying white-box products in cell sites that are based on traditional routing protocols but implemented with an open platform? Answer, because the new open stuff saves money without requiring changes in operations, and it doesn’t expose the operator to a technology that’s never been used at scale. The AT&T/Linux Foundation DANOS project or ONF Stratum, combined with P4 forwarding programs, offer a much greater chance of capex-driven transformation than SDN white boxes or hosted functions ever did, or will.
Three of the operators also agreed with our next point, which is the Internet is a service, not a network. It’s a confederation of global providers who interconnect IP infrastructure into a global service based on a public address space and near-universal connectivity. When people say that operators should be able to change this or that quickly because “that’s what happens on the Internet”, they’re forgetting that those providers are the Internet in an infrastructure sense. The agility of “the Internet” is really the agility of what’s delivered over it, and that doesn’t have the depreciation constraints or requirement for massive global infrastructure deployment that real networks have.
The infrastructure that creates the Internet is complicated, and how things like content delivery and even VoIP work isn’t well understood. The relationship between the Internet, broadband wireline access, and mobile access is likewise not understood. All of this creates confusion in what operators actually do, what they are responsible for fixing, and what payments made to them actually cover. One operator said that almost 100% of their customer base believed content delivery glitches were always the operators’ problem when operator data said it was most often CDN issues, and DNS problems were as often the cause of wireline access issues as broadband connectivity. Customer care is more expensive because of this problem, and visibility into customer services has to be deeper than the operators’ own service in order to respond.
The final problem, which gets 100% buy-in, is vendors and users forget that network operators are businesses, not public utilities. Public companies are responsible for making decisions that their shareholders support. If they don’t they face the risk of a hostile board of directors. You can’t just cut prices if it kills your stock price. You can’t toss undepreciated assets for the same reason. You have to worry about the next quarter, not five or six quarters in the future.
This last point resonated with me because countless vendors have complained to me about how operators don’t think about the future, just the present. At the very moment these vendor complaints are flying, the vendors themselves are hunkering down on obsolete products to keep current sales up, and hoping something will bail them out when the “future” comes along.
Operators agree with some of the popular comments on their transformation efforts. One such comment that stands out is that operators are not organizationally prepared for transformation. The current separation of operators into three groups—CIO for OSS/BSS, operations to run the network, and CTO to plan for adoption of new technologies—is almost universally seen as a barrier. It works for planning an orderly service set using fairly static technology, but not in the modern age.
This is borne out in my broader research. For example, operators across my own survey/contact base say that less than 20% of the technology projects/trials launched actually result in meaningful deployment. Almost three-quarters of operators say that OSS/BSS needs to be modernized, and half think it should be merged with operations. A third believe that the CTO organization should be a smaller team, more subordinate than it is today. Almost two-thirds liked the idea of a three-piece organization consisting of sales and marketing, infrastructure, and product/service management. The CTO group of today would be a part of the last of these, the CIO and COO groups the second, and current largely diffuse sales/marketing activity would be coequal with the others, and in fact be the lead group.
Network operators have been in the connectivity business for a century. It’s now clear that connectivity in the traditional sense isn’t going to keep the lights on. Experience delivery is a different world from a tech perspective, but it’s all the more different when a lot of what you’re delivering is ad-sponsored and thus free. ISP and common carrier and cable services are a vast industry, one that’s not going to turn on a dime, and we need to understand what’s really happening to understand how we can make transformation work better.
