“Caesar’s View” of the Network Operator Transformation Space

I remember (with little enthusiasm, frankly) my high-school Latin experience.  One fact I can still draw from those days is that “All Gaul is divided into three parts.”  Well, so are all operators.  Regulations, markets, technology and vendor commitments, and management and business goals all tend to make each operator an entity unto itself, but there’s only one market underneath it all.  This market is coalescing operators into three categories, and those categories will probably define how networking technology evolves through the next five years.

The first of these categories are the Johnny One-Notes.  We think of operators as vast businesses with a wide variation in service offerings and customer targets, but a large number of operators don’t really fit that model.  Managed service providers target business services.  Mobile operators target mobile broadband services.  The limited service targeting means that their investment and operations practices are tightly focused, and that the technology model used at the infrastructure level is contained.

If you buy a single class of device and offer the same basic service to all, you can sometimes base transformation on a specialized change in technology.  MSPs, for example, have been leaders in NFV adoption because the service-chain model of NFV has dominated NFV planning work, and because virtual CPE (vCPE) is the simplest model for virtual function hosting—a generalized box on the customer premises and not a cloud data center.

SDN and NFV specifications and the basic implementations of a controller (like Open Daylight) or orchestration (OPEN-O or OSM) are often as much as this group of operators need.  In fact, in truth, many of them don’t need SDN or NFV at all in a strict sense, they need an overlay concept like SD-WAN or the MEF’s Third Network and more agile CPE or some cloud-hosted (but not VNF-icized) features.

For this group, technology transformation is as much about breaking vendor monopolistic pricing power as it is about new technology strategies.  SDN/NFV vendors have taken advantage of the limited scope of operators’ needs in this category to promote early adoption, but these early steps don’t necessarily lead to any broadly useful solution.  The problem is that there are plenty of operators with broad needs who are still in this category in their own minds, still going for SDN/NFV one piece at a time with no systemic vision.  That’s never going to work.

The second category of operator is the broad-based multi-service operator, a category that gets a lot of attention because it’s where most of the Tier One operators are found.  This group of operators will almost always provide ISP services, and they have a mix of business and consumer customers, mobile and wireline.  Their capex drives the equipment market and determines the financial results of the major equipment vendors.

Operators in this category are facing the profit-per-bit compression I’ve blogged about multiple times, and the fact is that neither SDN nor NFV (separately or in combination) have proved to be effective in alleviating the problem.  As a result, they continue to put pressure on their capital budgets (they’ll do so again in 2017), and look for relief from their problem in technology changes.

Where those changes could come from is their big question.  This group drove both SDN and NFV, but the focus of both these activities was fairly narrow from the first and the pace of progress was slow.  As a result, the strict boundaries of the standards-based activities and the solutions derived from those activities proved too little, too late.  This group of operators has therefore been looking beyond the standards, to open-source activities and in particular to AT&T’s ECOMP.

The big issue for this group is opex control, and the problem is that while ECOMP has a broader scope than SDN or NFV and the standards-specific open-source projects, it still may not offer enough operations integration without customization.  It also may induce operators to look at a broad SDN/NFV/automation advance in synchrony, when for most operators prioritizing software automation of the service lifecycle and leaving infrastructure alone would offer a better return and less risk.

There’s a lot of work being done with ECOMP, though, and especially in OSS/BSS integration.  Right now, then, this operator community has the best chance of progress in 2017.

Cost management isn’t the final answer, even for our middle group.  For some, it’s not even sufficient in the near term, and for that reason our last group is the revenue aspirants.  For this group, the key question is what technology changes could drive significant revenue gains and take the pressure off cost management for infrastructure and perhaps even operations.

Everyone loves revenue best, but revenue gains are the most problematic of all the profit-control measures.  The biggest reason for that is that operators have tended to look for revenue gains from traditional connection services, through things like tweaking elasticity features or perhaps adding in managed service features.  They not only miss the best revenue opportunities this way, they focus on “opportunities in name only”.

Consumers want the lowest possible cost, period.  There’s essentially nothing that you can trade against cost for wireline broadband, and for wireless broadband the only thing that could possibly match service cost is geographic coverage.  Even that doesn’t matter for most users as long as you get the home area covered.  In any event, at least unless and until neutrality rules change, there aren’t any features you can charge for.

I’ve surveyed enterprises for literally decades, and I can tell you that even for enterprises, there is no connection service feature you could offer that cost doesn’t trump.  Put another way, enterprises would be happy to buy an elastic-bandwidth service if at the end of the year it cost them less than traditional non-elastic services did.  They’d be happy to get managed firewall and other connection-layer services too, as long as it didn’t cost them much of anything over their current on-prem product-based solutions.  Except for the managed service prospects whose issue is less monthly service cost than sustaining their own operations team to support products (which is really another revenue opportunity completely) connection-service revenue gains are a myth.

It’s harder to say how credible the “managed service” or “vCPE” model is.  Yes, it is true that users don’t want to spend a lot of money on network equipment.  They also don’t want to spend money on network services.  Enterprises typically have a professional networking staff that can support CPE, and in any case, you could argue that most of the “support” of things like a firewall lie in the realm of configuring the feature to admit and block the right stuff, which the user has to do pretty much whatever the ownership model of the “firewall” happens to be.

The real revenue opportunities for operators are just where operators kind of knew they’d be all along, where the OTTs have been working.  That means things that are hosted experiences, mediated experiences, contextual experiences, personalization, etc.  Many of the operators, and more of their people, are uncomfortable with a shift like that.  Perhaps that’s why relatively few have been pushing for technology changes to support the OTT-like space.  Some, though, have started to do just that.

The area that’s getting the most current attention is the application services space, meaning cloud services that deliver an application experience.  It’s not that this offers the best opportunity, but that cloud deployment is a small jump from NFV (see my blog of January 5th if you want to hear more on that).  The biggest actual opportunities are in the personalization and socialization of the video experience, IoT and contextual features for social networking and worker productivity, and optimization of mobile services for social, personal, and geographic features.  All of those require some vision of what the service is, which is why they lag cloud applications in near-term interest.  Operators still don’t see themselves as market evangelists.

The lesson I think should be learned from these operator categories is that nobody is really looking at transformation in a holistic way.  If you focus on a narrow model of SDN and NFV as the first category does, you’re risking either a failure of your business case for lack of sufficient benefits, or a new set of silos as you chase other narrow areas to add to your mix.  If you focus on the opex approach, you’ll embrace cost management but limit or eliminate revenue growth, and if you focus on revenue-generating new services you’ll risk suffocating them in inefficient operations.

We can’t transform three ways, even if there are three motivational groups singing their own separate songs.  The network of the future eventually serves the market of the future, and that market is unifying, not dividing.