PARIS -- MPLS, SDN and NFV World Congress -- Hong Kong's PCCW says telcos could face resistance from finance and product departments to the rollout of virtualization technology, on account of the new pricing and business models the move entails.
David Hughes, a vice president of engineering at the telco, said that persuading both finance and product teams of the merits of a "cloud model" was proving to be a "tough sell."
"They look at margins on individual deals and say these are small, and if you say you'll make it up in volumes they don't necessarily buy it," he told attendees during today's MPLS, SDN and NFV World Congress in Paris. "You have to convince them you'll sell it every day multiple times and that is tough."
Many telcos hope that by virtualizing their networks, and transferring the bulk of their spending from hardware to software, they will be able to reduce capital expenditure and pay their suppliers on a usage basis.
But the introduction of virtualized services means that telco customers are also expecting to benefit from new pricing models, and those could mean lower per-unit margins for the telcos.
"It changes how and what we are going to sell and how we frame that to customers," says Hughes. "They say they aren't using something all the time and so why am I charging them all the time -- this is an interlocked dance."
With the industry heavily focused on the need to retrain network operations staff, and get technicians to adopt working practices typically associated with web-scale players, the comments by the PCCW Ltd. (NYSE: PCW; Hong Kong: 0008) executive carry huge significance.
"We've been talking about the challenges the service providers face, and about shifting skill sets in the operations teams, but we clearly need to think about shifting skill sets in finance teams as well," says Charlie Ashton, the director of business development for the Wind River Systems Inc. software subsidiary of semiconductor giant Intel Corp. (Nasdaq: INTC). "They need to understand models that are commonplace in the cloud."
Old-school thinking within telco finance departments also has major implications for the equipment vendors that serve them.
Alastair Johnson, a principal solutions architect with Nuage Networks (a Nokia Corp. (NYSE: NOK) subsidiary focused on SDN), says most finance departments within service providers are "struggling" to adapt to new pricing models.
"Most providers are still looking at perpetual subscription or capex models and that is down to capitalization and amortization rules within finance departments -- you can't depreciate things you pay for on a monthly basis but you can on capital items," he says.
Johnson says there is a clear mismatch between virtualization and the way that capacity planning is currently handled within most telco procurement teams.
"That has led people back to the static perpetual licensing model," he says. "We are flexible but the financial models of most purchasing organizations struggle with that flexibility so they end up with a more traditional model."
Despite those remarks, Hughes insists that PCCW is keen on minimizing capex and shifting more of its spending into operating expenditure. "We have to pay dividends to stock holders and so our finance team does not like to do anything on capex because that eats cash," he says. "We always prefer an opex model."
He also insists that PCCW's main incentive for investing in SDN and NFV technology is not cost-related but about "mere survival."
"As networks grow in complexity you can have an army of engineers and they won't be able to keep it standing up -- you automate or die," he says. "It is just a part of doing business."
— Iain Morris, , News Editor, Light Reading