In a blog on Monday, I talked about the action that operators might be taking to improve their business model in the next three years. I based this on comments from 81 operators. Now, I want to use the same sources to look at what operators think about new services over the same period. Obviously, fixing their business model by generating new revenue would be the best approach, but do they see any way of doing that, and if so do they have a realistic approach?
There was at least some consensus among operators on the things they believed could be approved in the way of projects. When you shift to new services, things get a bit messier. In fact, there’s a considerable division both among and within operators on that topic, with the latter being more pronounced than the former.
Let’s start with actual committed strategies. Of the 81 operators, there were 73 who offered mobile services either as MVNOs or actual providers, 78 who offered specialized business services, 79 who offered consumer services of some sort, 12 who offered TV services. The baseline is important in assessing just what “new” might mean.
Now, we need to look at the constituencies involved. I have contacts in the service marketing and sales space, network operations, OSS/BSS/CIO, some with the CFO people, and the CTO organization. What I found, not surprisingly, was that the CTO people tended to be the most futuristic and the most optimistic with regard to “new” services, meaning that they took more aggressive positions with regard to off-the-wall stuff. Next in that regard were network operations people, followed by sales-marketing, then CIO, and CFO (no surprise) the most conservative.
The first obvious question is whether operators saw a chance they’d offer truly new services in the next three years, services that would make up a “significant” revenue source and don’t do that today. Overall, of the 81, 74 believed that such an opportunity existed, with that view held widely in the CTO and netops people, less so in sales-marketing and CIO, and lot much at all with the CFO people. Thus, it’s not surprising that if you shift the question to whether operators believed they would offer such services in that period, only 33 of 81 believed they would. The CIO and CFO views changed little between the two versions of the question, while the responses of the other constituencies were decidedly more negative.
What is the biggest barrier to actually offering those new services within the next three years? CTO and netops people picked technical barriers like lack of standards, time required to do trials and vendor assessment, and so forth. Sales/marketing people said the problem was the lack of a solid candidate service set. The CFO and CIO people believed the big problem was first cost and time to market, respectively. Overall of the 48 operators who didn’t see themselves offering a new service set in three years, 44 agreed that lack of a solid candidate and first cost were the most convincing. While all 48 mentioned things like standards and trials, those issues didn’t get broad support within any of the organizations and I believe they weren’t a factor in actual decisions.
What kind of services might be offered? Here things get really messy.
All 81 operators saw the greatest opportunities for new services being extensions of their current connectivity services. The top choice were a tie between security-related services and higher-capacity forms of the current services, which were favored by 72 operators (multiple choices were allowed). Next came usage-priced or pay-as-you-go services (65 operators), followed by content services (58), and IoT services (41). Cloud services (14) and AI services (11) were well down on the list.
There’s a very obvious bias in conversations with real planner-and-leader types in the operator community, a bias toward a notion that even the most transformational opportunities are somehow evolutionary rather than revolutionary. It would be unfair to say that there is zero interest in truly revolutionary services; of the 81 operators, all said that they believed that operators would benefit from “carrier cloud” and “AI” opportunities if they could realize them. The problem, clearly, is that they didn’t think they could realize them, and in most cases (48 of 81) they didn’t even think any could be approved by the C-suite people of their companies.
You can see this conservatism even in the way they address some of their greatest-opportunity choices. For example, the content services they thought would be good were really more content hosting than content selling. The same was true for IoT, which they believed was a connection opportunity (how that belief persists is beyond me). Even “carrier cloud” was seen as offering resources that were used in stuff like 5G Open RAN to third parties, rather than offering edge services to customers, and there was no clear idea of what an AI service would look like. I do not believe that there’s much of a chance operators would launch any major initiatives in these areas when today they don’t have a clear notion of what they’d be offering and how it might make money.
One reason for conservatism is what operators think they know about both business customers and consumers. What do both classes of buyer want? All 81 say that they want more for less. Drill down on how they believe that usage-priced services would be adopted, and 72 say they’d be used by buyers to lower their overall service spending. Even services like SD-WAN are seen by over half of all operators who sell to businesses as likely to lead to revenue losses because of VPN service displacement.
How about the option of getting out of network and tech services? Or getting out of their prime geography? How do operators who don’t really see any new services being offered think their revenues will increase? Remember 48 of 81 operators thought no new services would be likely in that period. Well, all 48 admitted they believed that future revenue increases would come in part through price increases, and 41 of 48 said they believed that taking market share from others would be another revenue source. Only 14 thought that expanding their service geography was an option, and (interestingly) none of them believed they should be looking at other services, like energy distribution, that might leverage their outside plant skills.
OK, time for some analysis. The basic problem here is differentiation/commoditization. A market yields its ability to sustain profit growth when buyers can’t identify anything incrementally valuable to justify more spending. Suppose you pay $50 to get your lawn mowed. If your landscaper wants to raise the price, they’d need to offer you some reason why you shouldn’t look at other options. Maybe you added work, maybe they use a particularly good mower or do a particularly excellent job. The point is that if there is no reason at all, you’d probably accept one increase and then start looking around. Network services are just pipes. They don’t deliver value, they deliver what’s valuable. Given that, you focus on what’s delivered and you look only for price and delivery quality. At some point, the latter almost surely stabilizes for all providers at around the same level, so you’re down to price. And you want it to go down, not up.
What about my personal choice, the concept of “facilitating services”? Only 8 of 81 operators said that was something they were already pursuing and 58 of 81 said it was “interesting”. The barriers to it were much the same as for other services, one of which being that fear of first cost, the cost of deploying something broadly enough to make success possible. Communications isn’t a local thing, after all, and so you need enough service breadth (geographically) to cover buyer requirements. Another barrier to facilitating services that doesn’t get much play in other categories of service is standardization. Operators recognize that a facilitating service has to facilitate something, and if every operator picked a different API set, the cost for partners to deploy on top would be higher, perhaps too high. This was just announced; a proof of the point that too many API sources can spoil the broth, but it also shows that operators aren’t thinking about facilitating new services, but are focused on getting others to use old ones. Which they’ll do if it’s cheaper.
Another problem is what exactly operators think “facilitating” means. To OTTs, it means services that would lower their own cost, meaning that they could offer a retail service at a better profit margin, a lower and more acceptable price, or both. Operators largely agree with that, but the problem is that unless what you’re offering is something not currently available, your facilitating service is likely to create a wholesale price point below your current pricing, which means it lowers revenue rather than raising it.
MWC is going on this week, and there’s plenty of discussion about new services or opportunities for new services. Vendors, obviously, are very supportive of the idea and I am too, as anyone who reads my blogs knows. Even the operators, as you see above, seem to want a really solid new-service opportunity. Wishing will not make it so. Operators themselves are conflicted on options and benefits, and more than anything are unprepared to undertake the kind of initiatives that would be required to make a success of new service opportunities.
I have to admit that my review of this topic was a bit depressing. I was hoping to see more interest in trials and tests, more active planning going on. What was particularly sad was the number of highly qualified planners, people I’ve been interacting with and in some cases know personally, that were pretty cynical about what their companies were doing. “We’re talking a lot,” one told me, “but we’re saying the same thing over and over.” That’s not going to move things along effectively, for sure.
