OK, MWC is over, and most operators say that it didn’t have answers for them on how to increase their profits. “We had a lot of vendors telling us the same old things,” one told me. Is there no new thing? Must operators, to achieve their goals, finally start doing things they’ve been told they had to do all along, but wouldn’t accept? I had 19 operators offer fairly extensive comment on that point, and it’s worth looking at what they say.
First, and perhaps most important, 11 of these operators started with the comment that Wall Street influence on operators was unreasonable, unrealistic, unprecedented. “We’re not a growth stock,” runs the typical theme. “Historically, telcos have been utilities, dividend stocks. We’ll never be able to match the NASDAQ leaders for growth.” There’s a lot of truth in this, I have to say. I can remember, on my very first job, talking with a seasoned guy in his 50s about financial security. His recommendation was to invest in utilities, including telcos, to earn steady dividend income. You don’t get rich quick this way, though, and I suspect that the Street view these days is all about that.
The reason this is important is that the right strategy for telcos depends on their goal, which for public companies like nearly all telcos are means shareholder value. If shareholders have unrealistic expectations, then telcos have little chance of meeting their expectations. As “value” or “dividend” plays, it’s another matter. All they have to do is sustain good free cash flows to generate dividends, and that’s a whole different thing to plan for.
New revenues are essential to getting a telco beyond the value label. According to 15 of the 19, telcos were likely able to sustain a dividend/value role by managing costs effectively, but they were not going to be able to achieve status as a growth stock. None believed that if cost management was optimally applied, they could sustain credibility as a growth stock over the long term. Of the 19, 12 thought that it would be smart for telcos to first apply cost management principles to their operation before attempting to find new revenue sources, and given that cost management was seen as critical to even a long-term value-stock position, the first step toward a viable future was universally accepted as cost management.
The big question, say the telcos, is what the optimum future infrastructure would look like. To answer that, operators point to network complexity as the primary issue in both opex and capex. There are too many devices, too many layers, in the network. The ideal model, say 15 of 19 operators, would aggregate edge traffic as directly as possible to a single metro-level point, which would then be fully meshed with other metros. This would reduce the number of devices and create a point for “feature injection” to generate new service revenues.
One thing this means goes against many of the current views on network evolution; intelligence at the extreme edge. None of the 15 believed this was possible; the capex/opex burden would be increased. Thus, the whole notion of Open RAN, with a controller (the RIC) managing resources, is held as impractical. Mobile/5G smarts should, to the greatest extent possible, be focused on a major metro hosting point. To give you an idea of what that would mean, there are said to be somewhere between 150 and 300 metro hosting points in the US, and about twice that number in the EU.
To achieve this, operators think they’d need a form of “passive aggregation” to the greatest possible extent. That means more optical capacity and optical deployment and fewer electrical layers. Three operators offered their own statistics here, which were fairly consistent. They said that for a given total-device capacity, a router cost twice as much to buy and four times as much to operate as a reconfigurable optical multiplexer (ROADM).
The problem, say the 15 operators, is that this isn’t how networks have been built traditionally, nor is it how the literal interpretation of mobile-network standards or open models would build them. While costs would be lower overall with this approach, the cost of premature displacement of a lot of technology makes the step unattractive, particularly given the fact that 5G deployment has resulted in many fairly new installations.
You may wonder why I’ve focused the issue of cost management on infrastructure. The reason is that the 15 operators all said that their previous mechanisms for reducing opex had picked the low apples, the opportunities that didn’t relate to a restructuring of the network itself. They also agree that given the fact that all cost reduction mechanisms ultimately run out of gas (you can’t have negative costs), profit growth will eventually have to come from revenue growth, which means stealing market share or selling new stuff.
The remaining four of 19 operators still believe that cost reductions can be had without restructuring their network plant, and that new revenue can be gained within the traditional models. These operators were characterized by four things. First, their primary service geography had a high demand density, meaning that a lot of buying power was concentrated in a contained area. That makes their capital deployments more efficient, and also reduces the number of devices needed. Second, they had a large population of business users. Third, their residential base was more technically literate, making support less costly. Finally, they had strong fixed/mobile symbiosis in marketing, so a larger percentage of their customers got both mobile and wireline from them. Only half of the four seem likely to sustain these factors over time.
One topic that did interest many operators (ten of 19) but is hardly new or glamorous is SD-WAN. A few, like BT, seem to think that future profit depends in part on the ability to raise “service networking” above infrastructure, so as to allow for changes in the latter to avoid impacting the former, and vice versa. More (eight of the ten) believe that it’s inevitable that competition force them to offer SD-WAN services.
Did MWC answer telco’s questions on how to grow their profits, or at least stabilize them? Not based on the comments I got, but to be fair, I have to point out that telco comments don’t suggest that they attended the show with that as a goal. One particularly interesting comment was “We went to MWC like someone who goes to a supermarket to buy dinner fixings, but without any recipe in mind.” That may raise the critical point; you can’t find the ingredients of a transformation if you don’t first decide just what your guiding parameters will be. Maybe next time.
