NGN Convergence: To Transform the Business Model
As service providers continue their IP network convergence, they also need to establish a business strategy that can provide a solid return on their next-generation network investment. Creating a network transformation plan is an essential part of the process that will help service providers increase the efficiency and flexibility of their next-generation networks and services while reducing operations expense (opex).
This Telecom Insights guide looks at what service providers need to know about deploying a converged network architecture that focuses on offering differentiated services that capitalize on their infrastructure and unique customer knowledge and how providers should go about building a solid network transformation plan that will result in the necessary ROI to compete and thrive.
In this series:
- A new vision for telecom network transformation
- Five steps to a next-gen network transformation plan
- Three mega-trends revolutionize telecom
A new vision for telecom network transformation
Much bigger than problems created by an economic downturn, network operators worldwide are facing much more pressure from longer-term erosion in the value of their stock-in-trade: transport bits.
Because business planners need to focus first on profit and revenue growth, today's fundamental market shifts mean that shorter-term planning will have to encompass a different vision of transformation and a different model of monetizing network investment.
The telecom services market is increasingly like a supermarket, with supermarket-like principles. Some services, like certain grocery items, will always be in demand but don't have much feature differentiation. These will become commodities in terms of price but will sustain the foundation of revenues and create customer loyalty. Other services, such as premium items in a store, will produce less revenue but command strong margins and boost profits. The transformation of the network marketplace to this model is the most significant goal for the industry.
Turning transformation on its head
Supporting this kind of transformation is still a hazy notion that could be called the Next-Generation Networks Services Architecture, or NGNSA. This architecture harmonizes the key components of next-generation network transformation:
- Service feature orchestration and syndication through developer partners, over-the-top partners, and traditional service provider partners.
- Business and operations management tools that are "service-focused" to align them with new directions in service creation and support a much higher level of automation of service lifecycle processes.
- Network infrastructure that can be quickly adapted to the traffic patterns and service-level agreement (SLA) needs of the widest variety of services, and tight coupling to the service layer of the network so network operators can differentiate their services from over-the-top solutions. This includes service delivery platforms (SDPs) for computing/software service components and network equipment for connection and transport.
The primary reason NGNSA notions are still fuzzy is the fact that activities are spread across a number of standards processes. While there are active liaisons between the bodies, standards are not moving in synchrony or even particularly quickly. As a result, network operators are looking increasingly to vendors for leadership in these areas and expecting those vendors to support the standards as they develop rather than waiting for them.
Nearly all major network operators worldwide report that they expect to buy into some vendor vision for integrated NGN services in the next year. For those operators, the choice of what approach to take is likely to be set by the priority they place on the three major NGNSA elements.
Complete solutions will drive partnerships
Of the three areas, the second (service operations and management) is probably the most developed in a standards sense, and thus network operators probably understand the positions of their vendor partners and have a good sense of convergence on standards approaches. But not every major equipment vendor has a service management strategy, and pressure to provide a complete solution is likely to create partnerships between management and networking vendors.
Service feature orchestration and third-party partner access to service elements for composition of retail services are likely to be the major focus of network operators in the near term. This area has not been active in the standards-setting sense for as long because the requirements of the space are less understood.
A number of announcements or commitments by equipment vendors in 2008 support the componentization, syndication and composition of services. And the architectures are only starting to emerge. The best approach here may be the most important single factor in creating NGNSA partnerships in the next two years or more.
Service-layer technology must create ROI
For the longer term, the last issue cannot be neglected. Service-layer technology that simply sits on top of connection/transport infrastructure ("anything over the Internet") empowers not only network operators but also over-the-top players. What network operators need and want is a way of creating value from their networks in the form of something linked with, but stepping beyond, the movement of bits. Little has been done in an organized industry sense to create specific service-layer partnership with the network layer. This partnership would provide a special benefit to those who build and own the networks. Thus it would justify network infrastructure investment more effectively by sustaining a higher return on investment (ROI).
ROI has been important for network operators for years, but the importance of ROI is magnified by a combination of economic uncertainty and increased pressure to evolve off the older TDM voice platforms in favor of IP-based services, including voice. 4G technology is based on IP voice, and fixed mobile convergence (FMC) is facilitated if voice technology in both wireline and wireless is based on VoIP. Major tier 1 operators are already announcing serious VoIP offerings, and this will put additional pressure on service-layer deployment because the move is almost certain to lower revenue per call-minute over time.
The role of IMS in the next-generation network
The fact that voice may be a driver for near-term change makes the IP multimedia subsystem (IMS) decision particularly important for operators. IMS is the approved and standardized way to manage mobile VoIP, FMC and non-voice mobile services. IMS is at least a candidate for supporting other NGN services such as video. Here again, standards may not keep pace with market requirements, and network operators may have to work with vendors prepared to take leading-edge positions on harmonizing IMS with service models beyond those involving SIP calling.
The ITU has suggested, in its NGN material, that IMS is one of several elements in what we have called here an NGNSA. But the precise role of IMS in that mix is not defined, nor are the other elements that would coexist with IMS. The vision of IMS's role in NGNSA may be the most critical of all in the near term because of the pressure to evolve voice services.
Network operators plan over a very long cycle--typically about seven years. That means that economic disturbances in the field are less a factor than they would be to industries with shorter capital cycles. Long planning cycles also mean that network operators require a very high degree of confidence in every step of their solution to evolving service needs and opportunities. That requirement is likely to generate new relationships and new levels of cooperation with vendors in the coming years.
Five steps to a next-gen network transformation plan
If transformation has a business goal and convergence a technical goal, then surely one of the challenges that face service providers today is how to navigate a commitment to both at the same time.
The problem is only complicated by the fact that transformation, unlike convergence, has no established formula or timetable. It's hard to get management support for something that, except for the goal itself, seems rather hazy.
The goal of transformation is to define a business strategy that creates sustainable revenues and profits from next-generation network (NGN) investments. Meeting that goal may require different specific technologies and services, but it can be accomplished with a general program that has some defined elements and timing recommendations. It is also important to address a few considerations or recommendations of what not to do, because some steps that are often taken are rarely successful.
Five steps to creating an NGN transformation plan
1. Picking a specific NGN service target set: This is the most problematic of all transformation steps. The most significant difference between the service environment of the past and that of the present is the short-term nature of buyer commitments to service paradigms. Basic voice and connectivity services are long-lived, in large part because they are so basic. As operators attempt to monetize NGN services, they must contend with the fact that the most valuable services to an operator are also those most valuable to service consumers, and this value proposition will change over time.
If committing to an inflexible NGN service strategy is exactly the wrong move, the best move is to create a service-layer architecture with the greatest flexibility possible -- both in terms of the way it can compose and combine service features and in the delivery options (wireless, wireline, computer, TV, phone, etc.) available. In fact, the difference between an IP network and an NGN is in the service-layer flexibility. IP alone simply creates a connectivity base that will be exploited by others but may not be profitable. NGNs must ensure the profit by providing services in a flexible way, not just transporting their traffic.
2. Restructure network, operations and business management systems around services, not technologies. In the second transformation step, the NGN service set will differ from the old set in that it will be made up of shorter-contract-period services with much wider markets. This means that inefficiency in service operations cannot be tolerated, or the costs will mount to swamp the budget. There are standards processes under way to guide this resetting of operations priorities, and many vendors already have tools and plans to support the switch. Services are the product of service providers, and management systems must reflect that reality.
3. Classify service opportunities at the high level. There is a taxonomy of service opportunities, starting with the basic classification of the customer (residential, enterprise, small business) and the nature of the value proposition the service will have for the customer (communication, data exchange, collaboration, hosting, software and computer outsourcing, etc.). For each opportunity element in the structure, there will be a total addressable market and a likely market penetration curve, and these can be used to set service opportunity priorities -- but not yet.
4. Identify the infrastructure implications of each of the opportunities. The goal here is not to plan out every piece of equipment or technology direction but rather to group the opportunities according to the type of infrastructure investment required to support them so that co-dependencies can be identified. In terms of an NGN transformation plan, the right answer will probably come by picking the opportunity group that has the best relationship between cost of infrastructure and benefit in terms of opportunity value.
5. Implement and execute a project to create an effective NGN transformation plan.The final step is a project to execute in the direction that is identified by the last step listed above. At the same time, the incremental steps involved in addressing other related opportunity groups should be explored to develop a plan for later investment and service deployment.
Projected timeline for an NGN transformation project
Most service providers have the information needed to support this sequence. If that is the case, operator experience seems to suggest that a task to complete the first three steps would require approximately eight months, assuming that work already done could not be leveraged. Service-layer deployments generally require about that same time for initial deployments, and so it may be that the operations processes in step 2 will be the inhibiting factor in preparing a quick response. This suggests that it is highly advisable that operations restructuring be given a high priority.
Every NGN program will be different, and every operator will have completed some of the tasks associated with each of the steps outlined here. An inventory of activities is often very useful in ensuring that nothing that has already been done is wasted, and this will also produce a faster path to NGN success.
Three mega-trends revolutionize telecom
Upcoming telecom changes are nothing short of revolutionary, or at least evolutionary, as trends emerge to create a single business model ecosystem out of telecom and the Web, content players and service providers find a workable balance of power, and cloud computing and social networking features gain in importance. Here's a look at the three main trends that will change telecom for the long haul.
1. An emerging online ecosystem joins telecom and the Web into a single business model
In December 2008, Alcatel-Lucent announced a company strategy based on creating the tools for this new ecosystem. Cisco CEO John Chambers had similar comments about binding the tools of the Web into a single, cohesive development framework.
In addition, articles about how Google was looking for a "fast lane" from access providers to speed its content to users seemed to make it clear that the old face-off between the over-the-top players and the telecoms might be ending. We've had years of "over-the-top" versus the carriers, and now we're heading for a future where the distinction will become very fuzzy indeed -- not through mergers and acquisitions but through cooperation.
For three or four years, telecoms and Web companies alike have been working to gain support from application developers to enrich their services. The iPhone and Android models were compelling because they generated a cottage industry that has driven the core product and service set to much greater utility, as well as greater adoption rates and revenue generation. The problem is that while everybody seems to want to support developers, everyone supports them differently.
No one has solved the question of how all these cooperative players manage to combine their efforts to create something stable, easily supported and capable of generating revenue for all through cooperative settlement. Standards have been marking time in this area, and now it looks as if equipment vendors are stepping in to create the framework for the new ecosystem. Why? Because capex is usually pegged to revenue, so if you can't help your carrier customers raise their top line, their spending will languish and so will vendor profits.
Service providers tried to solve this problem of cooperative ecosystem-building with standards, but they moved too slowly. They then started to pressure their equipment vendors to come up with a solution, and the Alcatel-Lucent and Cisco announcements are the result. There will be others; and it will be all about "service mashups."
2. A CDN/cloud computing model emerges for settlement for online services
This is why the new ecosystem is suddenly developing. For decades, the Internet has suffered from a basic problem of lack of settlement among the providers. Everyone pays for access to their ISP, but nobody pays for transit. Where there's no revenue, there's no investment.
On the other hand, content providers are happy to pay for content delivery network (CDN)caching, and Software as a Service (SaaS) providers are eager to find good cloud computing resources. The access carriers are putting money there, and these new resources link not to the Internet core but to the access networks. Telecoms worldwide have seen the opportunity to create a link between investment and revenue, and that new link threatens the whole legacy model of the Internet. It's bringing the Web guys to the table.
If every piece of content and every application were cached or hosted in metro centers, there would be no core traffic on the Internet at all. That extreme isn't likely, but what's certain is that the valuable stuff is migrating to the metro area. That forces the big players like Google to transport their own content via fiber to each access provider, which further bypasses the old Internet peering model.
You can't create a new ecosystem without having the pressure of the old one breaking, and that's what's happening. In the new ecosystem, content and application players will join with search and portal companies and telecoms to fight out a new balance of power.
The most significant winners will be the content/application giants, because getting commercially valuable content via a network connection is the stock in trade of the future.
3. Integrating social network features and relationship knowledge into communications is a trend in the making.
Yahoo launched an advanced email system that illustrates the value of relationship-managed communications, and this new notion will be incorporated into an expanding notion of presence as the central framework for communications and collaboration.
Presence-centered personal communication is the most "tactical" of the major trends because it will have an immediate impact on a number of emerging technical and product trends. Collaboration and telepresence both work better, and justify more investment, if they're mediated through social-network-like frameworks. This is likely to be one of Cisco's major areas of focus in harmonizing all of the Web 2.0 APIs into a new ecosystem. It's also likely to be a focus for unified communications and even things like IMS, femtocells and fixed-mobile convergence (FMC).
What technologies will benefit?
The technologies that will benefit from these major trends are:
- Fiber access, including FTTH and FTTN, because access providers will continue to fight speed wars with one another as they look to leverage their role in the new ecosystem.
- Metro Ethernet and optics, since all of the recent bandwidth created will be within metro areas. Look for new interest in hybrid Ethernet/optics products as well.
- Femtocells and FMC, which will probably benefit IMS. Mobile service competition and the need to integrate mobile and wireline features will be a big boost to this area.
- Operations software, particularly service management, abstraction, componentization, composition and third-party access via APIs.
The broadest impact of the trend on vendors will be promoting a more integrated product strategy that offers telecoms a link from revenue to investment. For many, this will involve partnerships supplemented by selective development or acquisitions that are intended to make each vendor's offerings unique and thus more likely to be accepted by buyers.