DT Demands Automation, Cloud Tech From Pan-Net Suppliers

Iain Morris
News Analysis
Iain Morris, International Editor
3/6/2018



Turning a motley assortment of ageing telecom networks into a cutting-edge pan-European cloud was never going to be an overnight task. But Deutsche Telekom's ambitious pan-net project remains a sleep-depriving slog three years after it was first conceived. (See Deutsche Telekom Turns On Pan-European IP.)

The goal is to replace the legacy technologies in individual European countries with more centralized cloud systems catering to the entire region. In this way, Deutsche Telekom AG (NYSE: DT) hopes to collapse about 650 different service platforms into just 50. Instead of developing a new service 13 different times for 13 different countries, it would in future build and manage one service for all of its operations. That should lead to cost savings and give Deutsche Telekom the nimble, "fail-fast" qualities normally associated with Internet companies. (See DT Plots Pan-Net, 'Answers' B2B OTT Threat.)

Deutsche Telekom's European Footprint
Source: Deutsche Telekom
Source: Deutsche Telekom

If pan-net is to make good on these promises, Deutsche Telekom's suppliers will have to shape up. At least, that was the subtext of a closed-door presentation by Jean-Claude Geha, the chairman of Deutsche Telekom's pan-net subsidiary, during last week's Mobile World Congress (MWC). Addressing an audience of suppliers like a schoolteacher lecturing an underperforming class, Geha was short on praise. "A lot of our vendors have been ready to orchestrate on top of their functions and their infrastructure," he said. "That is not our ambition. We want more. We want vendors to be able to orchestrate across other vendors. We want no lock-in."

That multivendor orchestration has been a stumbling block is no great surprise. Across the industry, telcos have been eager to vent their frustration about the lack of vendor interoperability, especially when it comes to the tools used in management and network orchestration (or MANO, as it is commonly known). Several years into its own virtualization journey, France's Orange (NYSE: FTE) has until recently relied on a "single integrator," says Yves Bellego, its director of spectrum strategy and planning. It has just started to invest in "fully separate" infrastructure, orchestration and virtual machines, he told Light Reading at MWC.

But Deutsche Telekom's concern is not confined to interoperability. The lack of automation that comes with the traditional setup is perhaps its biggest gripe today. While it has been able to reduce the time it takes to establish a cloud "instance" from about two weeks to less than four hours, it is still heavily reliant on manual processes at its service operations center in Bucharest. "We need to go beyond infrastructure and up the chain to onboarding network functions and customers," said Geha. "Intelligent automation is key."

What does this mean? From Deutsche Telekom's perspective, the future service operations center will not have lots of people and processes in different silos. "We see engineers working with software developers and operations people, leveraging intelligent automation to do service creation and recovery in seconds and hours," says Geha. "We need to keep working on that with suppliers to reach our goal."

Geha Throws Down the Gauntlet
Jean-Claude Geha, the chairman of Deutsche Telekom's pan-net subsidiary, gives suppliers some tough homework assignments.
Jean-Claude Geha, the chairman of Deutsche Telekom's pan-net subsidiary, gives suppliers some tough homework assignments.

With this came a plea for more standardization, the absence of which has been another industry bugbear. Deutsche Telekom has been encouraged by the recent efforts of the Metro Ethernet Forum, an organization trying to address the challenges of service management and orchestration in a cloud environment. But it wants to see an even greater focus on standardization in future. "That will allow integration faster," said Geha. "It will allow us to be more agile and to address customer needs. We need to work together on a telco-grade next-generation operation."

Indeed, the operator's ideal partner, it seems, is one that has fully embraced the "cloud technology mindset" and the collaborative working style that goes with it. Deutsche Telekom wants "real cloud technology" as opposed to "slightly modified platforms." It expects some degree of knowledge transfer, too. "We don't have to know everything but we need to be able to work end-to-end with our suppliers and third-party integrators," said Geha.

This all points to one of the biggest problems that pan-net has encountered: The shortage of cloud expertise in the market. In targeting "cloudification," Deutsche Telekom has put itself in competition for talent with the likes of Amazon.com Inc. (Nasdaq: AMZN), Facebook and Google (Nasdaq: GOOG), it acknowledges. To lure budding software developers and integrators from those much trendier companies, it may have to offer some generous arrangements to prospective employees.

If this makes it more dependent on vendor expertise in the short term, the plea for knowledge sharing could unsettle a few suppliers. With the rise of open source technology, some vendors already fear a loss of value. If customers acquire the same skills and expertise, the vendor's role could be further diminished.


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The poaching of top executives by customers may be another concern. Geha, interestingly, appears to have joined Deutsche Telekom last July from Ericsson AB (Nasdaq: ERIC), the struggling Swedish equipment maker, where he was previously in charge of business in sub-Saharan Africa. Nor is he the only Ericsson employee Deutsche Telekom has recently nabbed: Jason Hoffman quit the Swedish company in December to lead MobiledgeX, Deutsche Telekom's edge networks subsidiary. (See OrbTV: MobiledgeX Further Exploring Edge Computing Opportunities and DT Forms New Edge Computing Unit, Appoints Ex-Ericsson Cloud Guru as CEO.)

All that said, open source technology and open approaches are forcing vendors to adapt their business models, or risk obsolescence in some parts of the supply chain. If they do not accede to an operator's demands, then others may step into the breach.

The question is whether the companies on which Deutsche Telekom has traditionally relied have the requisite cloud expertise (or the inclination to deliver). Currently, it appears not: Geha would hardly be chiding vendors about interoperability, and demanding more on automation, if they suddenly measured up.

Next page: Where do things stand?



Where do things stand?
This does not mean that pan-net has gone nowhere since last May, when Deutsche Telekom last updated Light Reading on its progress. At the time, the operator had opened a data center in Budapest as well as the service operations center -- staffed around the clock -- in Bucharest. It now manages another data center in Warsaw and is currently building one in Athens to support customer needs across almost the entirety of its European footprint. (See DT's Pan-Net Still at Start of the Marathon.)

More services are also available over pan-net systems. Having "started small," with simple applications such as messaging, Deutsche Telekom is now providing email and voice (over WiFi and LTE) services from its centralized data centers. It has recently developed a financial services tool in response to new European regulations under the Markets in Financial Instruments Directive (or MiFID). Cloud CPE (customer premises equipment) technology was recently added to the pan-net portfolio, too. "We are about to start on the cloudification of our TV and data services," said Geha. "We have multiple TV platforms in multiple countries and the aim is to bring this together."

Still at the planning stage, however, is the rollout of a cloudified EPC (evolved packet core) that should help Deutsche Telekom to manage traffic growth more efficiently. "We might have to decouple the control from the user plane to work with regulations on data privacy," said Geha. The notification comes a long time after Axel Clauberg, Deutsche Telekom's vice president of aggregation, transport, IP and fixed access, had first highlighted a potential need for this split packet core back in May 2016. (See DT: Telcos Must Escape Vendor Prison.)

Escaping the Vendor Prison
Deutsche Telekom's Axel Clauberg has been complaining about the lack of vendor interoperability since before a Light Reading conference in May 2016.
Deutsche Telekom's Axel Clauberg has been complaining about the lack of vendor interoperability since before a Light Reading conference in May 2016.

In a sign of its interest in co-designing products with partners, Deutsche Telekom has also invited suppliers to work with it on the development of new, cloud-based voice applications. And despite admonishing its vendors on interoperability, it claims to have been running orchestration systems in the laboratory that have a multivendor capability. To what extent these have been engineered internally is unclear, but Geha says he is eager to start using them in a commercial environment.

If pan-net has slipped, Deutsche Telekom has been sticking to its guidance on related cost savings. Under a strategy announced about three years ago, the operator said it would look to reduce so-called "indirect costs" outside the US by 2.4 billion ($3 billion, at today's exchange rate) annually, compared with 2014. It aims to realize 1.8 billion ($2.2 billion) of those savings this year.

A commonly used accounting measure, indirect costs are expenses that cannot be allocated to a specific project or function, and include items such as group personnel and administrative costs. Deutsche Telekom's projections of a slight increase in "direct costs" implies a reduction in overall non-US operating costs of between 943 million ($1.16 billion) and 1.38 billion ($1.7 billion) this year.

As Light Reading has previously noted, tracking Deutsche Telekom's progress toward this target is not easy. Other than in its capital markets day presentations, it does not break out total operating costs in financial statements. Yet by deducting EBITDA from revenues, one can arrive at a ballpark figure for operating costs. Last year, that figure was 26.3 billion ($32.4 billion) on an adjusted basis -- about 680 million ($839 million) less than in 2014. Operating costs are falling, if not quite at the rate Deutsche Telekom had originally expected. (See DT 'Cost Lag' Could Overshadow Transformation Agenda.)

Cost Progress (B)
Source: Deutsche Telekom
Source: Deutsche Telekom

Nevertheless, as additional service platforms are shut down, and as more customers are transferred to the pan-net, further savings should materialize. In his presentation, Geha revealed that about 45 million customers are now on the pan-net. But Deutsche Telekom has many more, having served about 92 million mobile customers and 27.6 million fixed-line subscribers (with undoubted overlap between mobile and fixed) across Germany and Europe in late 2017. The ongoing automation of pan-net systems should also allow it to continue pruning its workforce. Hungry to automate, Deutsche Telekom has cut overall staff numbers by 10,500 since 2014, to roughly 217,350 at the end of last year. (See DT: Brutal Automation Is Only Way to Succeed and 'Brutal' Automation & the Looming Workforce Cull.)

Cost savings were never the primary objective, however. Figuratively speaking, what Deutsche Telekom really wants is to rip off its tightly buttoned suit and slip into the hipster outfit of the fast-moving software specialist. Like other telcos, it fears losing even more ground to the Internet giants if it cannot pull off this "DevOps" transformation. But that will require a cultural change across Deutsche Telekom's entire organization. For a decades-old, state-backed telco, this may be the hardest job of all.

Iain Morris, News Editor, Light Reading

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