DT's Pan-Net Picks Up the Pace

Iain Morris
Prime Reading
Iain Morris, International Editor

Like much from the past, old technologies attract their fair share of dewy-eyed enthusiasts, but Axel Clauberg is far from nostalgic when assessing Deutsche Telekom's hodgepodge of ageing European networks. "All that country-based production is quite ugly," said the operator's vice president of aggregation, transport, IP and fixed access, during a keynote at Light Reading's Big Communications Event in May. "We want to change the picture."

The process of doing so is starting to gather pace. In the next few months, Deutsche Telekom AG (NYSE: DT) will open a data center in Hungary that will support customers across 11 European markets. A plain old email service will go live sometime between July and September, but more sophisticated offers are set to follow.

I Want to Break Free
Deutsche Telekom's Axel Clauberg addresses telco executives at this year's Big Communications Event in Austin, Texas.
Deutsche Telekom's Axel Clauberg addresses telco executives at this year's Big Communications Event in Austin, Texas.

Through its "pan-net" project, the German telecom incumbent, which provides fixed and mobile services across a total of 13 countries in central and eastern Europe, is replacing the legacy operations that have catered to individual markets with a single European network. The aim is twofold: to reduce operating costs through the shutdown of national facilities and platforms; and to develop the kind of service "agility" that is commonly associated with web-scale players like Google (Nasdaq: GOOG) and Facebook . (See DT Plots Pan-Net, 'Answers' B2B OTT Threat.)

The overhaul necessarily entails plenty of centralization, although Sven Hischke, pan-net's managing director, resists the use of this word to describe Deutsche Telekom's plans. "I don't like this term because it often means in one place," he tells Light Reading. "We are developing an infrastructure cloud with more locations than one."

Indeed, the Hungary data center will eventually be joined by two others outside Germany, ensuring the distance between facilities and customers is never so great that latency becomes an issue. Deutsche Telekom is proceeding more warily in its domestic market, where the size of its fixed-line business and services portfolio makes the transformation much riskier.

But the need to be regional and local at the same time is perhaps Deutsche Telekom's greatest challenge. The broad objective is to stop developing services on a country-by-country basis and produce service components that local subsidiaries can piece together to create tailored offerings. Deutsche Telekom believes it can reduce the number of service platforms it maintains across Europe from 650 to just 50 through its pan-net transformation.

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

On the technical front, the operator has yet to overcome several hurdles. Due to local needs, for instance, it cannot just replace the packet core installations it has deployed in individual countries with a centralized function. Instead, it has been urging the vendor community to develop a "split packet core," said Clauberg at BCE. "We can centralize the control part and have the user part distributed across the countries where all the data handling is done."

While Deutsche Telekom claims to have recently carried out demonstrations of split packet core technology with Cisco Systems Inc. (Nasdaq: CSCO), Clauberg says the industry at large is "not yet there" with this kind of functionality. "We need similar architecture across our multi-country footprint for most classical core services," he said.

Next page: To all-IP and beyond

To all-IP and beyond
Moreover, the operator still has a long way to go on its transition to all-IP networks, which Clauberg sees as a prerequisite for the rollout of software and virtualization technologies. Deutsche Telekom aims to complete the all-IP transformation by 2018, but only half of its fixed lines in Europe (excluding Germany) were IP-based in March, up from about 45% in September last year. PSTN networks have been entirely switched off in the smaller markets of Croatia, Macedonia, Montenegro and Slovakia, but they still feature prominently in the much bigger territories of Germany, Greece and Romania.

Table 1: All-IP Targets & Progress

Country/region Total fixed lines in March ('000) IP fixed lines in March ('000) Percentage all-IP (March) Status/target for completion
Macedonia N/A N/A 100% Completed
Slovakia 851 851 100% Completed
Croatia 1,012 1,012 100% Completed
Montenegro N/A N/A 100% Completed
Hungary 1,659 1,331 80% 2016
Romania 2,055 409 20% 2018
Greece 2,583 166 6% 2018
Europe 8,687 4,261 49% 2018
Germany 20,093 7,470 37% 2018
Source: Deutsche Telekom

Deutsche Telekom has previously indicated that it costs between €30 ($30) and €60 ($68) per customer to make the all-IP switch, putting the overall investment needed in Europe and Germany at between €863 million ($979 million) and €1.73 billion ($1.96 million). With 59% of that investment yet to be made, the spending requirement works out to be somewhere between 12% and 23% of Deutsche Telekom's capital expenditure outside the US market in 2015, minus payments for spectrum licenses. Given the eye-watering investment needs at its access networks division, this will be tough to bear.

Ultimately, though, Deutsche Telekom reckons it can save about €10 ($11.4) per customer annually from all-IP transformation. That would put savings at about 2% of EBITDA in Europe and 2.4% of the figure in Germany last year. But the rollout of SDN and NFV should lead to even bigger savings in future, says Hischke. According to a white paper published last year by management consultancy Arthur D. Little and equipment vendor Alcatel-Lucent (NYSE: ALU) (now subsumed into Nokia Corp. (NYSE: NOK)), a European operator could reduce operating expenditure by a tenth through investment in SDN and NFV. (See Will Investing in SDN & NFV Be Worth It?.)

Table 2: Deutsche Telekom Versus European Rivals on All-IP

Operator All-IP deadlines Progress to date Publicly stated goals/benefits Notes
BT 2025 All-IP core network already built Simplifying estate; replacing legacy networks; saving costs Operator claims 21CN project achieved all-IP-to-exchanges target and that current initiative will take all-IP to premises
Deutsche Telekom 2018 Croatia, Macedonia, Montenegro and Slovakia are all-IP Service agility; cost savings (€1.2 billion ($1.3 billion) by 2020 from use of cloud-based technology) All-IP move is designed to support a major reduction in the number of service platforms Deutsche Telekom maintains across Europe, from about 650 before the process began to just 50 at its conclusion
KPN N/A >60% of connections Optimization for very high data volumes; reduced complexity; faster time to market To support our best-in-class access services, we continue to move towards an all-IP network, said KPN in 2014 annual report. "Moving towards a single IP core is needed to ensure best-in-class integrated services"
Orange N/A All broadband services in Mauritius are all-IP Improved user experience; better scalability, security and energy efficiency; enabling development of new services All-IP pilot under way in Mauritius, which was chosen, says Orange, because of its "size, the representativeness of the different markets, such as residential, enterprise and mobile, and the presence of all services and technologies"
Swisscom 2017 >25% of connections; >33% of customers Enabling cost-effective use of new services; offering services irrespective of type of access technology Has migrated data transport network to IP, commissioned IP-based telephony and multimedia platform and been offering IP-based services since 2009
Telecom Italia N/A N/A N/A Migration from PSTN to all-IP under way
Telefónica N/A N/A N/A All-IP forms a part of network transformation Telefónica is carrying out
Telekom Austria N/A All fixed voice customers in Austria on all-IP To overcome the problem of technology obsolescence related to the use of legacy networks Has revealed that another subsidiary will shortly make an announcement on all-IP conversion
Source: Goldman Sachs, operators, Light Reading

Deutsche Telekom has not provided any detailed guidance here. That is possibly because the immaturity of these technologies makes it hard to predict what impact they will have. Moreover, a recent survey of telcos by Heavy Reading suggests that expectations about cost savings are in constant flux. "Not everything is ready and so we have to use interim solutions and have a clear migration path for each and every platform," says Hischke. Using legacy hardware, the operator has already developed a pan-net messaging platform that supports SMS and MMS traffic. (See Opex Gloom Grows in New NFV Survey.)

Apparently frustrated by slow progress on the design of non-proprietary technologies, and eager to escape the clutches of some vendors, Deutsche Telekom has taken a leading role in Facebook's recently launched Telecom Infra Project (TIP), whose mission is to speed up the development of open-source technologies. Clauberg, who now occupies a board position at TIP, has also complained about the poor scalability of first-generation NFV. "Most of us start with virtual machine-based virtualization, which is very heavy… and doesn't scale endlessly," he told the audience at BCE. "Containers seem to be a better way to go for some applications." (See Facebook: TIP Will Open Telecom Hardware.)

In this kind of set-up, or one based on the closely related concept of "microservices," a network function would be decomposed into small individual components that a service provider could reuse in different ways to create customized, scalable applications. Caroline Chappell, practice leader of cloud and NFV at Heavy Reading, has described microservices as "real cloudification" and said they will deliver more extreme business benefits to operators than first-generation NFV, including greater automation and the ability to introduce new services much faster.

That could be critical for Deutsche Telekom. During trials of pan-net offerings carried out in Croatia, Hungary and Slovakia last year, the operator was able to set up a VPN of "medium complexity" in just 15 minutes, according to Claudia Nemat, Deutsche Telekom's Europe and technology boss. Previously, that process could take anywhere between two and four weeks. Clauberg has recently emphasized the importance of accelerating other service development if Deutsche Telekom is to avoid ending up as a dumb pipe. "Internet companies are using software-based production and have short market lead times and can take products off the market very quickly," he said during the MPLS/SDN/NFV World Congress in Paris in March. "We need to play the game with the same tools." (See DT: We Need SDN, NFV to Battle Web Giants.)

Yet Clauberg has acknowledged that containers may not be the answer for everything. According to Peter Willis, the chief researcher of data networks for the UK's BT Group plc (NYSE: BT; London: BTA) (now 8% owned by Deutsche Telekom), microservices could actually increase complexity and lead to performance problems by exposing more interfaces externally. What's more, Heavy Reading's Chappell reckons the investments most equipment vendors have made in existing products give them little incentive to support microservices deployments. Perhaps with such thoughts in mind, Clauberg complained that operators are living in a "vendor prison" during his talk at BCE. (See The Real NFV Revolution Is 5 Years Away and DT: Telcos Must Escape Vendor Prison.)

Next page: People problems

People problems
Regardless of these worries, at its soon-to-open Hungary data center, Deutsche Telekom is now working to "onboard" OpenStack, an open-source cloud-computing platform, as well as an SDN controller and other software. The pan-net project is expected to reduce the number of central offices that Deutsche Telekom operates from about 10,000 to "just a few across Europe," says Nemat. But this "cleanup" phase will eventually be followed by the opening of new facilities allowing Deutsche Telekom to bring a virtualized 5G core much closer to customers, according to Hischke.

We Are the Champions
Sven Hischke, managing director of Deutsche Telekom's pan-net project, collects a Leading Lights award for Best Transformation Strategy.
Sven Hischke, managing director of Deutsche Telekom's pan-net project, collects a Leading Lights award for Best Transformation Strategy.

That seems to mirror the approach being taken by AT&T Inc. (NYSE: T), although the US player's own transformation does not first involve any rationalization of resources across a multi-country footprint. For Deutsche Telekom, a major challenge here will be to address local regulations in different territories. Jettisoning facilities, and the staff who maintain them, may be easier said than done in some of Europe's highly unionized labor markets. Such concerns may have influenced the outcome of Heavy Reading's recent telco survey, which found that operators are increasingly doubtful NFV will lead to operational cost savings. "Even if you could automate everything you would have a lot of people in unions sitting in trucks and waiting for something to do," says Christian Martin, a senior director of network architecture and engineering at Cisco. (See AT&T: Virtualized Mobile Core Key to 5G.)

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Possibly an even bigger people problem is the old-school mentality and culture that pervades any telco workplace. As networks become increasingly software-based, and back-office systems evolve accordingly, the responsibilities of network engineers are starting to overlap with those of IT professionals. Yet analysts have noted the shortage of coding skills among long-standing engineers, while telco executives routinely bemoan the persistence of the "waterfall" approach to software development -- whereby design and release happens in a highly structured sequence -- and the lack of the "DevOps" agility that guides working practices in web companies.

"Most of the telcos I know grew up in waterfalls and cultural transformation is a really big challenge we have to master," said Clauberg. "Anyone trying to deliver [future] solutions in a waterfall model will sponsor a free ride in a barrel down the Niagara Falls."

Along with its peers, Deutsche Telekom cannot simply exchange parts of its bloated workforce for a coterie of young software engineers. Instead, it needs to re-educate existing employees while it tries to attract fresh talent into its organization. It has already sought advice from France's Paris-Sorbonne University on how it should change to attract the most promising young individuals entering the workforce. If it can master that particular challenge, the rest may seem a lot more straightforward.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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