Network Operator Technology Plan to Budget Transition: First Look

I continue to get responses from operators on the results of their fall planning cycle, on my analysis of those results, and on their planning for 2018.  The interesting thing at this point is that we’re in the period when technology planning, the focus of the fall cycle, collides with the business oversight processes that drive budgeting, the step that’s now just starting and will mature in January and February.  In fact, it’s this transition/collision that’s generating the most interesting new information.

Typically, the fall technology cycle leads fairly directly to budget planning.  In the ‘90s, the first decade for which I had full data, operators told me that “more than 90% of their technology plans were budgeted as recommended”.  That number fell just slightly in the first decade of this century, and in fact it’s held at over 80% for every year up to last year.  In 2016, only about three-quarters of the technology plans were budgeted, and operators told me this year that the expected that less than two-thirds of their technology plans would be funded next year.

The problem, says the operators, is that it is no longer fashionable or feasible for CFOs to blindly accept technical recommendations on network changes.  In the ‘90s, half the operators indicated that CFOs took technology plans as the primary influence on budget decisions.  By 2009 that had fallen to a third, and today only 17% of operators said that technology plans were the primary driver.  What replaced the technology plans was business case analysis, which in 1985 (when I specifically looked at this issue) was even named as an important factor in just 28% of cases.

Part of the reason for the shift here, of course, was the breakup of the Bell System and the Telecom Act of 1996.  Regulated monopolies don’t really need to worry much about business case, after all.  But remember that the biggest difference in behavior has come since 2015, and through all that period the regulatory position of operators was the same.  The simple truth is that operators are finally transitioning from being de facto monopolies, with captive markets, into simple competitors, and as such they can’t just toss money to their network weenies.

So how did this impact technology plans?  Well, 5G plans were budgeted at a rate over 80%, but nearly all the stuff that’s been approved relates to the millimeter-wave 5G hybridization with FTTN, and the remainder still relates to the New Radio model.  Everything beyond those two topics is just trials at this stage, and in many cases very limited trials at that.  But 5G, friends, is the bright spot.

SDN was next on the list of stuff that got more budget than average.  Operators said that almost half of SDN projects were budgeted, but remember that the majority of these projects involved data center switching.  If we looked outside the data center and restricted ourselves to “SDN” meaning “purist ONF-modeled” SDN, about a quarter of the technology plans were budgeted.

NFV fared worse, to no surprise.  It had less than a third of its planned projects budgeted, and nearly all of those that won were related to virtual CPE and business edge services.  The actual rate of mobile-related (IMS/EPC) success was higher, but the number of these projects was small and the level of commitment beyond a simple field trial was also limited.

Worst on the list was “service lifecycle automation”, which had less than a quarter of the technology plans budgeted.  According to operators, the problem here is a lack of a consistent broad focus for the projects.  The fuzzier category of “OSS/BSS modernization” that I’ve grouped into this item did the best, but the goals there were very narrow and inconsistent.  Three operators had ambitious closed-loop automation technology plans, none of which were approved.

Interestingly, the results in all of these categories could be improved, says the CFO organizations, if CTO, CIO, and COO teams could come up with a better business case, or make a better argument for the benefits being claimed.  According to the operators, these changes could be made with little impact in reducing budgets even as late as May, but if nothing significant was done by then, it would be likely that fixing the justifications would result in limited spending next year and more budget in 2019.

The second thing that came out of the comments I received is that even operators who weren’t among the 77 in my survey base were generally in accord with the results of the fall technology planning survey.  There were a few that were not, and those I heard from were generally associated with atypical marketing opportunities or competitive situations.  National providers with no competition and business-only providers made up the majority of the dissenters.  I suspect, but can’t prove, that those who said their own views/results had been very different were expressing technology optimism more than actual different experiences, but since I don’t have past survey results to validate or invalidate this judgment, I have to let the “why” go.  Still, I do need to say that among non-surveyed operators, the view on SDN and NFV is a bit more optimistic.

A couple of other points that emerged are also interesting.  None of the operators who got back to me after the fall planning cycle thought that they would likely take aggressive action in response to any relaxation in net neutrality rules.  They cited both a fear of a return to current regulations and fear of backlash, with the former a general concern and the latter related mostly to things like paid prioritization and settlement.  Operators need consistency in policy, and so far they don’t see a lot of that in most global regulatory jurisdictions.  I’d point out that in most markets, a commission is responsible for policy but operates within a legislative framework, and thus it would take a change of law to create more constant policy.

Another interesting point that I heard from operators was that they’re becoming convinced that “standards” in the traditional sense are not going to move the ball for them going forward.  In fact, about ten percent of operators seem to be considering reducing their commitment to participation in the process, which means sending fewer people to meetings or assigning them to work specifically on formal standards.  On the other hand, three out of four said they were looking to commit more resources to open-source projects.

Operators have had a love/hate relationship with standards for at least a decade, based on my direct experience.  On the one hand, they believe that vendors distort the formal standards process by pushing their own agendas.  Operators, they point out, cannot in most markets control a standards body or they end up being guilty of anti-trust collusion.  They hope that open-source will be better for them, but they point out that even in open-source organizations the vendors still tend to dominate with respect to resources.  That means that for an operator to advance their specific agenda, they have to do what AT&T has done with ECOMP, which is develop internally and then release the result to open-source.

The final point was a bit discouraging; only one in ten operators thought they’d advance significantly on transformation in 2018, but there was never much hope that 2018 would be a big year.  The majority of operators said in 2016 that transformation will get into high gear sometime between 2020 and 2022.  That’s still what they think, and I hope that they’re right.