Telcos Face Hard Reality Check on Software, Virtualization

Telefónica CTO Enrique Blanco once remarked that investing in software and virtualization was not about gaining a competitive advantage over other telcos. Instead, he told Light Reading during a meeting at last year's Mobile World Congress, those technologies would help operators fight back against so-called over-the-top (OTT) players -- but only if the telcos pulled together.

That's a refrain the industry has now heard from a number of service providers dabbling in SDN and NFV. As skepticism grows that technology investments will lead to substantial cost savings -- at least in the short term -- some operators have become fixated on the idea that SDN and NFV will transform their service offerings. Armed with leaner, fitter networks, telcos will be able to resist the OTT incursion, they argue. (See DT: We Need SDN, NFV to Battle Web Giants and Opex Gloom Grows in New NFV Survey.)

Unfortunately, a telco cannot easily dump all of its connectivity-provider baggage and take flight as a sleeker, sexier type of technology company. OTT players became a threat by repurposing mainstream telco services and then offering them to consumers on the telcos' own networks as a whizzy and cheap alternative. That is a bit like using a carmaker's factory, free of charge, to produce lower-cost and more stylish vehicles.

This is, of course, why net neutrality is such a pressing concern. In Europe, some telcos have voiced optimism that new rules will allow them to charge for higher-quality network services. But it seems improbable that telcos will ever be able to collect large sums of money from web telephony, messaging and certain other OTT players, or offset their losses to those players through sales of differentiated network services. (See Net Neutrality Rules Threaten 5G, NFV – Telenor.)

There is little doubt that software and virtualization moves -- along with the digitalization of back-office systems -- will speed up service development, and make experimentation easier. That will certainly help operators to devise web-like communications services that pass muster, and might even improve customer loyalty, but it won't halt the erosion of traditional revenues. It could even make this worse.

Essentially, telcos need to ensure their new offerings are as sophisticated as possible but hope that customers cling to their traditional services for some time yet. There is already evidence of this today. In the UK, Telefónica 's O2 subsidiary owns a mobile virtual network operator called Giffgaff, which has adopted the web principles of handling queries online and not tying customers into contracts. Giffgaff has topped customer-satisfaction surveys, and grown rapidly, but its modus operandi is strikingly at odds with that of O2, which keeps Giffgaff at a distance. This is obviously not a long-term solution.

For more NFV-related coverage and insights, check out our dedicated NFV content channel here on Light Reading.

Perhaps the great fallacy of SDN and NFV is that they will somehow give rise to new types of service. While they might aid the process of innovating, ultimately allowing operators to adopt the "fail fast" approach of the web players, they will not in themselves make operators more innovative. Only by hiring fresh talent, and ensuring the workplace culture is conducive to innovation, can telcos really address their shortcomings in this regard.

In fact, when operators talk about new types of service, they typically mean old types of service with a neat twist. With the launch of 5G, service providers plan to slice and dice their networks to suit a variety of different needs -- a low-latency, super-reliable connection for robotics, say, next to an ultra-fast link for mobile video. SDN, NFV and digitalization will be important facilitators of this "network slicing." Yet far from transforming the telcos' role, it will simply make them more dynamic and efficient connectivity providers. Depending on the regulatory interpretation of net neutrality, it might not even unlock new sources of revenue. (See NFV Key to 5G Business Case, Says TeliaSonera and 5G: Hurdles on the Track.)

So maybe software and virtualization investments are about competing against traditional rivals after all. In a future where dynamism and efficiency are the key selection criteria for consumers, business customers and partners, the telcos that lag on technology transformation will lose out like never before. A few service providers have acknowledged they want to gain the upper hand over rivals by seizing the early initiative on SDN, NFV and digitalization. Doing this while those technologies are in their infancy, and in need of input from the broader telco community, will be a challenge. But trying to counter the OTT threat with a technology-driven strategy will be much tougher.

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

kq4ym 6/29/2016 | 4:30:46 PM
Re: Free ride? It does seem the Telcos are going to have to turn up their creative juices to keep competitive. As offering services to "consumers on the telcos' own networks as a whizzy and cheap alternative," is going to take some work to overcome. How fast they can move on software virtualization may make a big difference in the end game.
Mitch Wagner 6/20/2016 | 8:05:47 PM
Re: Free ride? brooks7 - I like your model here because it turns conventional wisdom on its head and I'm a sucker for the contrarian view. It paints a picture of OTT providers bearing the risk and service providers reaping the benefit of that risk. Service provider says: Want to go up against Netflix and Amazon Prime? No problem, we'll take your money. 

It's like the woman in THE INCREDIBLES who made all the costumes for the superheroes. Lucrative business, and less risky than chasing supervillains. 
jayakd0 6/17/2016 | 9:33:42 PM
Re: Free ride? @Mitch To me, it looks like the UBER way, they don't own cars, but make the best usage of these cars owned by someone really efficient making a WIN WIN situation to all stake holders. At the end, it is all about  customer experience and no wonder customer sees immediate value at the uber app, though telcos do lot of heavy lifting (like the car owners) in the background. It is for the car owners to keep their assets fit and responsive, else they too will vanish from this new game! changing times :)
brooks7 6/17/2016 | 3:25:38 PM
Re: Free ride? More than that Mitch.

The business investment and risk profile of an OTT player is entirely different than a facilities based provider.

To me that is the heart of the problems that you have pointed out here.  The Telco makes its money no matter if any particular OTT player does well or poorly.  They ALL need bandwidth.  

Simple answer on how make a Telco more nimble?  You can't.  If you want to build a nimble OTT company within a Telco then it needs to be a completely separate subsidiary.  Can you imagine the Network Engineers at Comcast reviewing the plan for next year's fall lineup at NBC?  That is how ridiculous it sounds to me that Telcos are going to be able to adjust themselves to compete with application developers.


iainmorris 6/17/2016 | 12:32:40 PM
Re: Free ride? Agreed. It's unfair to suggest the OTT players are free riders -- that view of them is very much from an old-school telco perspective.  
Mitch Wagner 6/17/2016 | 12:24:49 PM
Technology for technology's sake I'm concerned that when I hear service providers talking about virtualization, they're saying they need to virtualize so they can innovate, without specifying what that innovation is. 

That's backwards. 

Businesses need to identify demand, then buidl infrastructure to feed that demand. Virtualizing for future, unspecified innovation is the other way around. 
Mitch Wagner 6/17/2016 | 12:22:48 PM
Free ride? "OTT players became a threat by repurposing mainstream telco services and then offering them to consumers on the telcos' own networks as a whizzy and cheap alternative. That is a bit like using a carmaker's factory, free of charge, to produce lower-cost and more stylish vehicles."

In other words, OTT companies are free riders, parasites who sit on top of telco networks, contributing nothing and siphoning off the profits?

Not true. 

OTT providers pay for bandwidth from their datacenters to the Internet. 

Then consumers pay for bandwidth to consume the OTT providers' services.

Netflix pays Amazon for cloud services, Amazon pays ISPs for Internet connectivity, and I pay Cox for the Intenret bandwidth to watch consume Star Trek: The Next Generation on Netflix. 

No free rider. 

What the OTT providers are doing is more like leasing a factory from a car company and then producing a better, cheaper car. 
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