Consultancy Arthur D Little has published a new white paper “Reshaping Telecom Investment in a Next Generation World”. While many people would argue that the current balance of CAPEX-to-ROI for telecoms operators is undesirable at best, does ADL have the right solutions?
“Telcos are under pressure to increase investment while revenues plateau; over the long term, this is financially unsustainable,” the report authors begin.
Superficially that sounds accurate. Pause for thought, though; where does that pressure come from, and is it really a question of increasing investment?
The authors helpfully include some statistics and charts, showing that capital intensity (CAPEX spending versus revenues) in Europe and North America has been rising over the past few years. The reasons behind that include fibre rollout for fixed and mobile; rolling out 5G networks and virtualization; continued network densification; and huge investments to maintain high network quality across growing data traffic volumes.
Fundamentally this boils down to a set of investments to keep pace with growing data demand and to deploy 5G systems. However, these are lagging indicators and we have already seen the pace of 5G investment slowing. Meanwhile, the true rate of data growth is a debated topic, with some arguments that it is plateauing for now.
Cost of Living vs Speculate to Accumulate
That said, the report authors take some strong positions which could prove useful.
“Traditional telco efficiency programs that focus only on cost reduction through analyzing costs and budgets, redesigning processes, and adopting automation are no longer enough,” they say.
And this is reasonable. If we accept the premise that data consumption is continually growing, then investing in ways to reduce cost per bit are essentially not growing the business, just buying time.
“Operators need a new framework to guide CAPEX/OPEX spending to ensure ROI [Return on Investment]. There should be less emphasis on spending reductions and more on targeting investments to drive ROI.”
This sounds superficially like just common sense. However, this is an area where many telecoms providers have struggled. Orange Business Services is doing some interesting things, for example in cybersecurity; and telecoms providers especially in Africa have famously made great successes out of financial services. Nevertheless, the industry has seen many diversification strategies which stumbled, such as those of Verizon and AT&T to acquire media organisations.
What is more, while ‘buying time’ might sound derogatory, not having the business collapse is still a fundamental. Any new investments in growth will take time to create a return (assuming they succeed), and there’s no sense in losing your customer base in the meanwhile.
So what’s the solution? The ADL team believe they have the answer to this conundrum.
“Instead of a blanket approach to network CAPEX, operators are evaluating their spending on a geographical basis, centered on the three KPIs of commercial, technology, and customer experience. They also must evaluate their complete service offering portfolio on a geographical basis.” (Italics 6GWorld’s)
“Both fixed and mobile operators should tailor the quality of service (including throughput and latency) and the portfolio itself at an access node level (i.e., the mobile site or access point for fixed-line networks). This analysis should be based on a financial evaluation of required CAPEX/OPEX versus expected revenues generated by the forecast customer base, competition, and customer requirements and expectations.”
Spend Local
That’s an interesting take. Building service capabilities on a very targeted, local level is quite a step away from the basic premise of telecoms as we knew it, where making sure people could communicate in as many situations as possible was the basis of competition.
That said, in many countries population coverage is close to saturation point and access to broadband has been mooted as a human right. Increasingly we are seeing a move away from competition based on geographical coverage, thanks to a growing groundswell of infrastructure sharing – all part of increasing the efficiency of telecoms and reducing the physical impact of duplicated cell towers on different environments. There may well be an argument for moving away from broad-brush, national scale rollouts.
So, what would that entail, if that advice is to be followed?
Firstly, we would need to change the way that procurement processes work. If in future telcos are going to provide very localised services driven by a granular understanding of ROI then national-scale procurement programmes are simply unsuitable. We would need something more flexible; and ideally capable of much more rapid decision-making than existing practices so as to move on business opportunities in a timely manner.
At the same time, it would still need to assure that the new capabilities will ‘play nicely’ with the underlying and neighbouring network. Standards and certification can only do so much, as every network is different. Digital twins are still a relatively new capability but might be a way to predict the impact of new investments on a localised basis, depending largely on what those investments are. Software-based services overlaying the network, such as edge computing or storage capabilities, might be relatively isolated from the rest of the network. Introducing new AI-driven features into the air interface would not be.
The solution, of course, might be to trial a new capability in a couple of locations to see how that goes first… at which point infuriated network professionals might be wondering how this varies from what they currently do. While a company might ‘launch 5G’ to commercial fanfare, it won’t be rolled out everywhere simultaneously.
Change Your Heart, It Will Astound You
This is probably an unfair commentary. The Arthur D Little team go on to explain a bit more about the process, which seems to be less about the practical execution and more about the underlying mindsets driving the process.
“Essentially, [telcos] must redefine the classic top-down planning process, which is normally determined by engineering factors rather than investment considerations. CAPEX planning, in today’s 5G era and in the future with 6G and beyond, must operate at unprecedented pace, scale, and precision with seamless workflow across the entire organization. Achieving this requires a framework that unites efficiency levers and embraces a customer-centric perspective.”
In other words, this is an argument for restructuring how decision-making and execution function within many telecoms players; focussing first and foremost on the business needs of the telco.
We might imagine it playing out in discussions about 5G-Advanced. While 5G as a consumer phenomenon seems to have been driven less by customer demand than a case of “keeping up with the Joneses”, once announced publicly it set certain levels of expectation in end users. With 5G-Advanced we might see a conversation about what new features it will bring for the end user; what customer groups are liable to adopt them and where they live; what uplift in revenues that’s liable to generate; and therefore where it makes sense to deploy, if anywhere. Is there a business case to even work through the costs of procurement to create that level of uplift?
This changes the dynamic within the telecoms company, insofar as it now entails a much closer collaboration between marketing, sales, customer engagement and pricing specialists and the network engineers.
Everybody’s Gotta Learn Sometime
In itself this may be a good thing for creating more visibility and comprehension across the different facets of the organisation. However, the ADL team also give a case study from the Middle East in which “a convergent operator wanted to build a significant presence in the B2C and B2B markets using its own FWA and fibre network. This required a shift from its existing focus on offering point-to-point connectivity to B2B customers.”
By working with an analysis of customer demand, competitor activity, cost to upgrade sites and potential market size in each area, it was possible to make a business case per site.
In this case, something like the Pareto principle applied.
“This approach enabled the operator to successfully offer fixed fibre services to 40% of the B2B medium-high-end market with an investment that was five times lower than initial estimates by focusing upgrades in main cities and avoiding unnecessary investments. The same approach was then applied at the backbone level to identify infrastructure gaps and the need for redundancy to protect relevant traffic routes and enhance network resilience.”
A cynic might say that this is something which would not be terribly surprising – many B2B organisations gather in clusters, so targeting them is a relatively straightforward business decision.
While ADL may not have done something wildly innovative in and of itself, it set up a situation where fibre deployment could be closely linked to planning for the sales team; and that kind of internal coordination, that changing of processes and priorities, can be some of the most difficult change to achieve. The mere fact that ADL is writing about this and advocating it as the way forward for telecoms goes to show that it’s not as common as we would all like.
While the telecoms industry is great at technology innovation, the fact is that organisational innovation lags and that can impact upon the bottom line. There is a vast amount of momentum within telecoms companies and changing the status quo in any big company is massively difficult. While we might like to tut at consultancies for giving us ‘obvious’ answers to problems, this is worth reading and reflecting on. If the next generation of technology is to have a chance of helping solve some of the industry’s fundamental problems, we have to be prepared to change some of the fundamentals within the organisation in coordination with that.
