Turning the telecom industry back to growth

By Mika Skarp

The telecom industry has been in a static state for more than a decade now. At the heart of the stagnation is a near constant fight between telecom operators and content providers. Increasingly, this fight shows telecom operators pitted defensively against content providers and application developers as the latter continue to innovate new ways of providing services and experiences to their customers.

If we take a step back we can see that while the volume of traffic in networks increases exponentially, carrier revenue growth is flat. So while new content, services, technologies and revenue models are served and growing on the carrier's network, there is increasing evidence that 'defense mode' simply isn't working for them.

There's no question that the road to growth is paved with excellent customer experiences. Yet when consumers are asked about their experiences of telecom services, the answer is clear - they are not happy and they blame telecom operators. They are not wrong. Today, we are in a sustained period of low customer satisfaction with telecom operators. Carriers are simply telecom not meeting their customer's expectations, and they are feeling the consequences.  With sagging revenues, flat growth and little in the way of game-changing new technologies, the prospect for a quick turnaround is slim. This calls for a new and better business model. 

There is clear evidence that Software Defined Networks (SDN) together with Network Virtualized Functions (NVF) will be the technology of the near future. These technologies will help to reduce significantly the cost of running networks, but they won't bring top line growth. Interestingly, and even more dire for operators is the fact that with NVF and SDF anybody can start their own operator business as long as they can get access to the fiber network. Thus, while operators face an uphill battle to maintain customer likes and loyalty, competition will only be getting fiercer in the near future.

In this scenario, how can telecom operators generate revenue growth?

In the very beginning, the service and the network were one and the same. Voice was delivered from point A to point B. When you wanted to have a phone at your home that wasn't already hooked up, you had to wait for months or even years for service. This was the reality in some parts of the western world even in the 1980s. Then mobile phones arrived. The business model stayed the same and the profits were huge.

In the next phase, data was added on mobile service and suddenly the model was broken. This is because data is not a service; it is just an enabler for the service. Now we've learned that service innovation is not coming from the telecom operators, but from companies like WhatsApp, Netflix, Spotify of course Google.

But the fact that somebody has to build and maintain data networks has not disappeared. To stay in the business you need to be profitable. To be able to invest you need to grow. How can it be done? While in the beginning one network was serving only on application. Now we need to create a system where one network can serve many, many applications. And not just service those applications, but serve them in very strict accordance to what they require from the network. We call this the Application-Aware Network (AAN).

AAN is not so much about technology. While it requires SDN and NVF to be in place and run, AAN is better thought of as a business model.

How does the AAN model work? In the content business, every application has a unique value and requirement for network capacity. This is the need that telecom operator needs to match. For applications that are not time sensitive, a traditional "best effort" profile is all that's required. But when real time data is moved over the network, user profile needs to be different. For real time data, some applications require symmetric profiles (equal amount down/uplink) some are more downlink or uplink oriented respectively. Some applications are delay sensitive. One device can be used for several applications and so its profile needs to be dynamically changed. This also implies that different profiles should have different price points based on the amount of resources they will consume from the network.

Why only one network? When we are in situations where one network is serving many applications, the cost of a byte is order of magnitude lower compared to a network that is built for serving only one application. This is very important to remember in emerging world of the Internet of Things (IoT). One could argue say that this is mandatory to make the dream of IoT a reality on a large scale. This calls for regulation, because network needs to be open for everyone, in other words network needs to be neutral inside one profile. In practice this means that everybody needs to be able to buy all possible profiles on equal terms and traffic inside the profile should not be prioritized based on the destination of data.

Requirement for neutrality means that content providers and capacity providers will be in practice different companies. Or at least there should not be any unfair advantages for those content providers who happen to own also capacity networks.

AAN will turn the telecom business around and will lead us to the world where access, fiber and cloud capacity are forming a single platform that different content providers will use to provide high quality services on their satisfied customers, human and machines. In this ecosystem all players are playing scalable game, there will be winners and losers on every part but no part is doomed from the beginning.