How Communication Service Providers Can Prepare for the Future
Connectivity services, meaning services that create connections between users, or between users and applications, are almost impossible to differentiate except on price. Connectivity is a commodity, and is pushing telcos in a race to the bottom, as they compete against each other to match the highest speed for the lowest price.
Businesses that traditionally leveraged network operators as application hosting providers, are increasingly making the move to the major hyperscale cloud providers (AWS, Azure, and GCP), placing pressure on telcos to rethink their B2B strategy and launch new edge-to-cloud services.
Revenue is flat and margins are shrinking, and yet the demand for cloud and connectivity is only growing as consumers introduce more and more connected devices to their homes and lives. The shift to 5G, IoT, Edge, and AI technologies will only accelerate this trend.
Telcos must evolve their strategy to prepare for this future and overcome four critical challenges.
1. Switching to an as-a-Service Delivery Model
As a commodity, connectivity services are very difficult to differentiate from a user experience perspective. In the Canadian context, the experience of having an internet connection doesn’t fundamentally change whether you are a customer of Rogers, Bell, Telus, or any other telco of comparable size and scale. They offer similar speeds and price points, offer sufficient discounts to new customers, incentivizing consumers to switch providers regularly with “win over” programs, and this contributes to an industry problem of customer churn (based on price).
Telcos are realizing the need to enhance their connectivity services to make them more compelling for enterprise customers. One of the ways telcos can realize this aspiration is by shifting to a software-defined, as-a-service model for delivering connectivity services. This will improve the end-user’s adoption experience, allow the end users to scale their consumption with their needs, and slightly improve the margin of profitability for service providers.
While network-as-a-service can provide near-term revenue support for operators, eventually, this will commoditize as well. Users don’t want to just connect to their apps, these apps have to be developed, and doing so requires cloud infrastructure. Thus, telco investments into edge and cloud infrastructure are critical for delivering on future revenues and sustainable margins. Telcos will maximize the value they provide by having their network-as-a-service offerings seamlessly integrated into their edge-to-cloud experience.
2. Creating New Channels of High-Margin Revenue
Telcos are looking for ways to diversify their revenue streams. They are evaluating the cultural, technical and organizational changes required to shift to providing connectivity services, as-a-service, as well as evaluating the opportunity for them to enable the next generation of low latency applications and experiences at their network edge. Edge-to-Cloud services are more complex to operate and sell for traditional network operators, but offer the promise of potentially higher growth offerings with a sustainable margin.
In most markets around the world, the hyperscale cloud providers are leaders in delivering scalable and cost-effective cloud computing services. While telcos have the option to engage in undifferentiated reselling of these services to the market, there’s a tradeoff in being abstracted from the end user’s experiences (as simply the underlying connectivity provider). If telcos want to escape the network-as-a-commodity trap and position themselves at the forefront of their enterprise customers’ experiences, this is the right time for them to begin investing in the platforms, partners, and ecosystem required to deliver edge-to-cloud services. This will help CSPs reorient their B2B business for the future.
3. Collaborating with Hyperscalers
Competition, coopetition, or genuine collaboration, call it what you will, but to deliver the next generation of applications and experiences for enterprise users, telecoms and hyperscalers will have to work in tandem. This raises some serious questions for both parties.
Who owns the customer experience?
Who is providing the infrastructure required to support these applications?
Where is this infrastructure supposed to reside to support the lowest possible latency?
If a telecom partners with a hyperscale cloud provider, does this preclude them from offering their own infrastructure-as-a-service or platform-as-a-service (IaaS/PaaS) at their network edge?
It’s our opinion that hyperscale cloud providers are an essential part of a telecom’s edge-to-cloud portfolio. However, we also believe that for telecoms to be successful in the future, they can’t simply resell hyperscalers or exclusively be the connectivity provider. They need to be actively engaged in owning the customers’ experience, and leveraging their “beachfront property” assets (ie. data centers, central offices, cell towers, etc) to offer their own differentiated, edge-to-cloud and connectivity services.
This is the genesis of why we developed our CloudMC software, to help service providers offer their enterprise customers a software-defined fabric that integrates hyperscale, on-premises, regional, and multi-access edge computing (MEC) clouds with a secure data overlay.
4. Attracting, Retaining, and Upskilling Talent
CSPs entering the cloud space soon realize they require a whole new set of skills. Internal networking and IT teams must be retrained to be cloud operators, not just of one cloud, but operators for potentially multiple edge-to-cloud providers. Even more difficult (and rewarding) is the upskilling of sales enablement. Selling cloud solutions is incomparable to selling connectivity, it is a much more complex and involved sales process than existing telco sales reps will be used to or comfortable with. These skills are in high demand, and the competitive landscape for cloud solution architects has often favoured renowned technology brands like Microsoft and Google.
Given these challenges, CloudOps is invested in enabling our telecom partners to build, operate and sell edge-to-cloud solutions to their target market(s). Telcos have a long road ahead of them that will involve many difficult technical, cultural, and organizational changes. Many CSPs are, in fact, making these changes right now. Whether you work at a CSP who’s just starting their cloud journey or your team is well underway and looking for a partner who can help you git there faster, connect with us and learn how we can help you own your destiny in the cloud.