A Research View of the Telcos in 2022

Research reports are always interesting, but like anything these days, you have to consider the question of bias. Nobody is going to publish research that contradicts their own market positioning and sales efforts, which is why individual companies’ research is nearly always suspect. Organizations like the TMF, representing a collection of companies, are sometimes immune to specific bias, but even they may publish reports that are sponsored and have to be assessed objectively. That’s the case with a recent TMF report, sponsored by Red Hat and available HERE, and called “Key Themes for 2022”. There are eight key themes in the report, and we’ll look at each of them briefly.

The first theme is “core networks: 2022 is all about deployment, not monetization”, and it’s an interesting point that’s worthy of being first. Essentially, the idea is that operators are changing their vision of “core” networks to unify wireline and wireless in general, but in particular to support 5G Core and 5G SA concepts. The sense is that operators are going forward with 5G Core and in particular network slicing to create new future revenue. Right now, they know they need to suck it up and bear initial deployment burdens.

While frankly I think this is an approach that’s incredibly risky, it is in many cases the current operator view. They are committed to 5G as an evolution of cellular broadband. There is next-to-no willingness to pay more for consumer 5G, and if you look at 5G logically you’d expect that this would result in having 5G RAN deploy over legacy LTE Evolved Packet Core (the so-called “Non Stand Alone” or NSA model). This would likely mean that there would be no real additional revenue from 5G at all, which looks bad for operators. Thus, they cling to the notion that having 5G Core and network slicing will somehow transform them. Do they believe it? Most I chat with do not, but they have no other position they can take to affirm a revenue-positive 5G model.

The second theme is “Open RAN’s disruption of the radio network oligopoly will ramp up in 2022”, and I think this is also a fair statement of what operators say and see, and what I think is going on. However, I also think it’s an oversimplification, and that the linkage between it and the first theme needs some explaining.

Open RAN has in fact helped to open up the RAN, but is that really disrupting the “radio network oligopoly?” The actual radios involved in 5G are far from open and populist, and the one thing that every 5G network needs is radios. The fact is that the radio piece is, and has been, the primary attractor for the big mobile vendors. Some operators even argue that without a major initiative to create an “open radio” as opposed to an “open RAN”, the impact of the Open RAN initiative will be limited to new entrants and small players. So as a belief, this theme is valid. As truth, not much more than a “maybe”.

Theme three is “telcos are playing catch-up as MPN competition intensifies”, and this shifts focus from what operators think to what I believe vendors like Red Hat want them to think. MPN means “mobile private network”, and so this statement is both an assertion that there is significant new MPN opportunity to be had, enough to be important, and that telcos could and should chase it by providing MPN packages. Both these points have problems to consider.

We have no reason to believe that 5G will generate significantly more private cellular networks than 4G has. With regard to 5G MPN as an operator opportunity, that smacks of self-cannibalization. Enterprises would adopt private 5G only if it were less expensive than operator 5G, so it’s hard to see how operators could think this was a big plus for them. Enterprises would have a lower barrier to adoption for open-model 5G, and despite the fact that there’s no solid reason to think they will be significant sources of adoption (and revenue), vendors like Red Hat look to them for some early success. If operators could be induced to jump on supplying private 5G to enterprises using open-model networks, so much the better. This theme is more wishful thinking than a statement of fact, but there’s at least a tenuous basis.

Theme four is “end-to-end orchestration gathers momentum as 5G scales up”, and with this point I think we’re moving into speculating a future shift based on a chain of hopes. If UFOs land, and if the inhabitants want to eat out rather than on the ship, there’s a market for alien groceries. You can probably guess from my analogy here what I think about this theme.

We have no solid model for what the network of the future would look like, but as I’ve said in many blogs, I believe that changes in demand will drive architecture changes, not technology shifts like 5G. It’s certainly possible that SDN and function hosting (not NFV; that concept is D..E..A..D) will play a role in creating edge applications. That will create a need for orchestration, but function hosting or SDN will not be driven by 5G RAN or Core, open or otherwise. That’s more likely to be an effect of edge computing, for which we’re looking at an IoT or metaverse driver.

Theme five is “telcos should open up their networks to become true platform businesses” and here I really think we’ve elevated oversimplification to an art form. Let me get this straight. We’re network operators sagging under a burden of decades of decline in profit per bit. The solution is to become a wholesaler, offering our bits to others for exploitation…and wholesalers need a discount. What’s wrong with this picture?

AT&T said the right thing here. Operators need to build new features that they can wholesale, features that would facilitate the creation of higher-level (OTT) services. They do not need to sell current connectivity, marginally profitable as it is, at a wholesale discount.

The sixth theme is “digital trends are raising the bar for customer experience”. As operators move into the advanced 5G services that they hope to find customers for, those customers are going to foul the profit nest by demanding even more quality when we know they’ll be hoping to pay less for new connections, not more. We have hypothetical B2B slicing or private 5G, but surely more demanding in QoE. This is now, IMHO, promoting a vendor-centric vision that undermines the business case that would be needed to support doing anything at all.

QoE is important, but if we’re talking about 5G services based on network slicing cores (the earlier themes) then “raising the bar” is hard to justify given that these are services with no experience base. In any event, the notion that you absolutely have to meet customer expectations no matter what is simply silly. You have to deliver what you promise, at a price that gives you a profit and makes the customer’s business case.

Theme seven is a question: “will hyperscalers continue to have the upper hand in relationships with telcos?” The telcos have provided, says the piece, the connectivity on which those parasitic public cloud giants ride to their billions. Well, yes, and that’s exactly the role the telcos chose for themselves. They had every possible asset in the public cloud service market—the real estate, the connectivity, and the low internal rate of return that facilitates a market entry. They had good free cash flow and a historic tolerance for a big capital investment. Carrier cloud could have tapped the market that the public cloud providers exploited. It’s now too late to be thinking like that.

What this theme about is really “co-investment” which means that somehow both sectors would cooperate to produce a common service set. This is again what AT&T is talking about, but AT&T is looking at the issue sensibly. Yes, it would be possible for telcos and the public cloud giants to set up a partnership. Right now, such a relationship would either favor the public cloud providers or it wouldn’t happen. The telcos have no leverage. What AT&T has suggested is that they could create leverage by framing lower-than-OTT-higher-than-connection services that would shape the partnership. That’s the right approach.

Theme eight, the last one, is “telcos strive to become better competitors in the war for talent.” The report talks about COVID and the “great resignation”, but the fact is that telcos have been disconnected from the leading edge of the tech job market for decades. Why? Because they hired what they needed for what they wanted to do. They wanted to build it and let them come, where the real skills gravitated to Those who built where “they” wanted to go.

Every organization is self-limiting in hiring. Managers hire for positions they value, and pay for the skills associated with those positions. The truth is that the “talent” the report talks about will always, these days, go to either startups, vendors, or OTTs, because those organizations offer more. There are many companies who cannot acquire or retain talent in key technology areas, largely because they can’t meet prevailing salary/benefits or can’t provide a credible career path. Some, like the telcos, aren’t really trying today, but would they offer as good a position as one of those startups? I doubt it.

The report makes some good points, cites some interesting data, but I think that it shows a bias that colors its conclusions more and more as we progress through the eight themes. Most of all, it reflects a subliminal “supply-side” vision of the market, the notion that a specific technology deploys because it’s “better” or “newer” or “more open”, even if there’s no clear business case to drive its adoption. That’s a view that a vendor in the networking space could be forgiven for holding, but not one that’s likely to succeed for either sellers or buyers. In the end, wishing and hoping won’t make it so.