There is a tide, they say, and that’s true for many things, technology included. It’s been almost five years since I first said that there was more to be gained from operations automation than by capex reduction via things like NFV. That was true then, and still true even just a couple years ago. It’s now bordering on being untrue, and the implications of that shift are truly profound.
In 2014, my model showed that operations automation could have yielded a 6.5 cent reduction in “process opex”, which was about 20%. Capex reductions via things like NFV could be expected to yield less than 3 cents based on the same modeling. The current model says that capex improvements would likely yield less than 2 cents in 2020, and opex improvements about the same. What the heck happened here, and what does that mean?
The biggest problem we have is what could be called “standards latency”. The NFV process has been interminable, and even today we’ve not come up with an approach that’s both effective and broad enough in area of impact to make a significant difference in overall cost of services. Operationally, that same point has eroded the possible benefits by delaying adoption, but the bigger problem is that operators have taken piecemeal measures to reduce opex, lacking any systemic approach. These measures have been less effective and have done nothing to prepare for future improvements, but they’ve managed to erode the benefit of total service lifecycle automation by doing (inefficiently) what automation could have done.
Where we are today is, in a sense, frightening. We had an opportunity to reduce opex by almost 30%, but point strategies have addressed about two-thirds of that. We had an opportunity to reduce capex by about 15%, and today the odds are that we’ll achieve less than 3% reduction. This means that “transformation” of the network is considerably less likely to build a business case than it was in 2014.
The most immediate impact of this shift is that operators are now unlikely to gain much from shifting to a feature-hosting-centric vision of traditional services. The point-solution strategies that have given them a breathing space on the collapse of profit per bit have now run out of breath, and even if we had a strong service automation and feature-hosting model in place (which we do not), there’s little chance that we could get it into play in time to change things much in profit-per-bit terms.
The first consequence of this is that it is now impossible to make connection services profitable enough to sustain infrastructure investment. Operators need to climb the food chain in terms of services, moving from simple connectivity to experience creation and delivery, or they’ll eventually have to turn to governments to subsidize their operations—become public utilities again. That’s a major problem for two reasons.
Reason one is that operators clearly don’t want to get into experiential services, and have dragged their feet deeply enough to create canyons in order to avoid it. To say “that has to change” is to ignore the fact that it’s been likely it had to change for at least five years, and it hasn’t. In fact, with the current emphasis on operators outsourcing cloud hosting, there’s every indication operators are running away from their opportunity…again.
Reason number two is that experiential or higher-level services demand additional investment and new improvements in operations automation. Operators have routinely fronted “first cost” investment in infrastructure in advance of full revenue realization, but that’s not likely to happen with overall profit margins at risk. And the operations tweaks they’ve made to address opex costs, lacking a systemic solution to operations and service lifecycle automation, aren’t applicable to experiential services. A good general solution would have been, but we can’t fund that out of the savings that the tweaks have left on the table.
The second consequence of the shift is related to this point. We can’t fund service lifecycle automation, OSS/BSS modernization, and all the related stuff, from the residual benefits. Thus, we very likely won’t get the tools needed soon, perhaps ever. Thus, the service advances that would surely generate more operations complexity—all the experiential services—will take much longer to operationalize and be much harder to make profitable. NFV, truth be told, would generate opex costs that would swamp any capex benefits, for anything besides business services and virtual CPE.
This problem was created by the failure of the operators and their standards activities (ETSI in particular) to accept and adopt what I’ll call “cloud reality”. Cloud computing companies knew from the start that they had to make hosting profitable, so they worked hard to provide for operations automation. All their work could have been leveraged by operators, but it wasn’t. The ETSI NFV ISG is just now trying to pivot to do what it could and should have done in terms of cloud-technology exploitation.
The interesting thing here is that the network standards people, by demonstrating their inability to address market issues in a timely way, have essentially forced the operators to make the right choice—pick up the cloud work being done and use it instead. It’s already possible to frame cloud-hosted services and applications in an effective operations framework using the tools created for the cloud. Might operators have prioritized things a bit differently, or customized things for their own applications and needs? Sure, but it’s too late now.
“Industry specification groups” or ISGs, which is what the ETSI work on NFV and operations are said to be, shouldn’t be writing standards in the first place, they should be “identifying” them. We’ve gone way too far over the line in doing the wrong thing, and that’s something that ETSI itself should be looking into. But even if the standards people actually focused on doing the right thing, could their processes have been completed any sooner, and would they have made the right choices? We’ll never know.
The final lesson here is that the telecom technology world is hopelessly out of sync with the real market. When the Internet made consumer data and services the primary opportunity, it made the service market a consumer market. Consumer markets want what they want when they want it, which is usually right now. The cloud space has accepted this truth, and the operators never have.