From TSP to DSP

Telecom service providers rack their brains on how to transform themselves into a digital service provider

History is being made in the shift of telecom users’ behavior that we are witnessing. When we get up in the morning, the first thing we look at is our social networks on the mobile. Social media, cloud, mobile phones, analytics is causing a big disruption. That is scary, but also creates lots of opportunities.

On the telco networks today there is a huge surge in data, video, services, thanks to OTTs like Whatsapp, Facebook, Twittter on the one hand, and e-commerce play- ers like Flipkart, Amazon and Snapdeal on the other. This massive data surge is also putting a lot of pressure on the bandwidth, and the networks, and even affecting quality of service. The great hue and cry about call drops is one example. There is increasing pressure from consumers

to offer better Whatsapp and Facebook. And if all the DIgital India and Smart Cities plans take off, one can imagine what is likely to happen. There is now action on the M2M front. Video is becoming the new voice. Broadband penetration is no doubt great news for the telecom sector and the economy.

It is in this background that John Chambers has said that 50% of the incumbents - service providers as well as technology vendors will not exist after 10 years. They will have to re-invent themselves constantly to survive and grow.

Today telecom constitutes almost 3% of our GDP, and there is a direct co-relation between internet penetration and GDP growth. No doubt that as internet penetration grows, and data grows, there will be impact on economic growth too. Hence, pushing the growth of data, and its monetization will have a direct bearing on the growth of the economy as well.

Innovation with both technology deployment as well a revenues models will be the most important factor for success. The challenge is that many of the revenue models innovations might not be easy unless newer technologies are deployed and leveraged.

The only way to convert these hurdles into opportunties is for the present TSPs (telecom service providers) telcos to evolve into DSP (digital service providers). From the traditional connectivity solutions itself which operators provide today, there has been a significant impact on GDP. Just imagine what will happen, when as DSP, the share of telco’s participation in a consumers digital life will go up. This share of digital life for the operators will be very important. People will almost live their life through the digital medium using their smart phones. From a customer’s digital life perspective, what will be very important is, what share of the customers digital life do operators just carry; and what share of the digital life they actually own.

However, operators are in a flux - they are under pressure to invest more on spectrum and network while they are not being able to monetize this data surge. So is it that the right or the latest technologies and perhaps the best business models are not in place? Voice&Data, alongwith Cisco, organized a series of telco roundtables in Mumbai and Gurgaon, the two telecom hubs, with senior telecom executives to discuss the challenges and try and find the way forward.

Challenge to Opportunity

One of the biggest challenges (optimists call it the biggest opportunity) is the giant shift happening in the user profile, the user expectations, and behavior. People download movies, then they download blue-ray movies, then 4K movies and so on. They are downloading product videos during online buying, or suddenly a video clip on social media goes viral. Telcos don’t know what content download will suddenly shoot up. As long as it was voice, predicting and projecting change and working out the requirements was very easy. But with data it is very difficult and that makes the job of network planners even tougher. Data growth is throwing very different challenges on them. User experience is becoming critical, and this is pushing operators, technology companies as well as policy makers across the globe to go back to the drawing board.

There is an investment angle too. Big shifts are changing teleco requirements significantly. And whatever changes they do, shifts keep happening rapidly and frequently. And this needs huge investments in scale and size. Existing networks on which most operators are sitting are complex that have grown over the years, one on top of the other. There is a voice network, then one for data, later one for security, one for IP, one for security, one for services and so on. To complicate matters often these networks are from different vendors.

In India, on one hand we have many operators but limited spectrum, and on the other hand we have a billion plus population, all of them wanting to use data. To work under these limitations, new and innovative technology will be critical for the operators. The perception is that whatever they deploy will be good for maybe a year, and then again they will need new solutions. So balancing between recovering your RoI and customer delight is always a challenge. The usual “Business for tech or tech for business” questions are there, that lead to serious boardroom battles about what percentage of investments can go in for transformative technologies. Because money is limited, and there is an existing business to run there is a high possibility there will have to be a structured approach for network transformation, based on opportunities which keep coming up. A full one time shift will be very difficult.

Also, telcos find changing technologies quite baffling. For instance, now with cloud, which completely changes the business model, questions come up about the need to invest big amounts in

On the telco networks today there is a huge surge in data, video, services, thanks to OTTs like Whatsapp, Facebook, Twittter on the one hand, and e-commerce players like Flipkart, Amazon and Snapdeal on the other. This massive data surge is also putting a lot of pressure on the bandwidth, and the networks, and even affecting quality of service

capex. Telcos need more flexible, innovative and attractive licensing models from the equipment companies - not regional, or circle wise, but maybe national. And they are apprehensive of moving all elements of the network to the cloud because there are security concerns and regulatory restrictions.

New technology acquisition or even technology expansion is not just about availability of money. There are other factors too.

The traditional telco networks were driven by 2Cs - coverage and capacity. But now AEIOU will drive the networks - AEIOU - networks which are Aware, networks which are Elastic, which are Intelligent, which are Optimizable, and networks which are Ubiquitous. Three out of these three factors are dependent on technology - aware, elastic and intelligent. But the other two - Optimization and Ubiquity are resource based, and considering the spectrum availability and other policy issues relating to cell sites etc, which telcos are not sure if technology will be able to solve. The transition therefore from TSP to DSP will not be easy.

Similarly, the history of this sector is that while the economy grew at 8% plus and mobile penetration grew at more than 100%, institutional and governance structure reforms in telecom did not happen at the same speed. It was just playing catchup. And we know what all problems including legal and business expansion, that this sector ran into. Now, how much and how fast institutional structure and governance reforms happen in telecom, will also have a bearing on how they acquire technology.

Upgrading users on the value chain will be another challenge. The digital world will transform everything around us. In terms of data revenues, the India story is still in single digits in relation to the size of our actual networks. In the last 6 month period, India added over 40% of the new subscribers added globally. But if you look at the growth of data in the same period, its too small. Most of the Indian subscribers are still sitting in the analog world. They are not the digital natives. The challenge before the operators will be to handhold these subscribers from 2G to 3G to 4G.

Also, lets not forget that the backhaul is very critical here, because working only on mobile networks will not solve the problem. If traffic is going up exponentially, the back-haul should also be ready. The industry stopped building terrestrial telecom infrastructure over 15 years ago, and everybody jumped into mobile. From 30 million, the landline has shrunk to 25 million because the industry leapfrogged with mobile because it also gave telcos a very fast scaling up model in terms of network deployment as well as revenues. In many other economies, before mobile came every home had a mobile connection, and every street had fiber.

Regarding backhaul capacity the good news is that just on the lines of the Power Exchange of India, the Andhra Pradesh government has announced a tender to layout fiber, alongwith a billing system and a CRM, that will be offered to the operators. In the next 10 years we will see a lot of other States who are waiting and watching taking the core infrastructure back. These could be the netcos of the future. And we could see MVNOs come up.

Another big challenge before us is the knowledge base and the human resource that will help telcos make this transition from a telecom service provider to a digital service provider. Most telcos accept that at this point India is largely stifled for the skill sets required to take this industry from voice to data and video. What will be required is to sensitize everybody in the organization about the digital transformation. Today very few people are aware, and that is one reason why knowledge base is low, human resource for this is scarce. Because we need to be digital in this growing data centric environment. A telco’s DQ or data quotient will be what will help transformation. This is obviously not going to be very easy as most of the top and middle level leadership is mostly on the fire-fighting mode with little time for strategy.

Collaboration is an obstacle, but also the key

As telcos work out ways and means to plan this transition, technology deployment will be more meaningful if there is collaboration between the ecosystem partners including the government. Collaboration between operators is sometimes not easy due to many government policies that come in the way or are not friendly enough. As data, video and services grow, managing spectrum which is a scare resource, becomes critical otherwise there is too much fragmentation of the spectrum. Operators and policy makers will need to sit down to figure out how to ensure allocation of adequate spectrum, as well as spectrum trading and sharing policies. This will provide enabling conditions for increasing data revenues as well as explore new emerging opportunities. The policy makers must understand this tradeoff.

There are so many initiatives possible with more government support. For instance why cant telecom be considered as an essential service and get all its advantages. Why can’t for all the new commercial and residential buildings coming up, there be a certification that the premise is ‘Broadband Ready’ or ‘WiFi Ready’. Clearly, more than anything else, today a lot more public private collaboration is required.

India has this typical mindset that “I will do everything”. That phase is over. Telcos cannot be end to end service providers anymore. They will have to collaborate. Because if they try to do everything, then by the time they are ready with everything, they will create new cost points and also customer requirements and expectations would have changed. Also, since there is a huge demand and supply gap, and there are instances where some operators are sitting with access capacity, why cant operators look at a collaborative model to come up with innovations. An operators with good last mile, another with good fiber, can pool and collaborate to use each others resources.

To boost investments why cant there be Tax Free Bonds for telecom infrastructure as it was allowed for railways and

power last year. The government might not have realized the kind of capacity that will be required over the next 5 years. We are talking of 100 times growth, if Digital India and everything else takes off. The government must realize that and plan capacity building accordingly. And that requires out of the box thinking because 100 times capacity creating cannot happen in 5 years. For instance Google is using balloons for connectivity, and Japan has used its entire drainage network to lay fibre ducts. Why not work on revenue sharing models with municipalites. Why cant we throw cables in all the rivers.

We cannot have a voice network, a data network, another IP network, and so on. Most successful network transformations are happening from multiple domain multiple networks to single domain networks. And after we will see a lot of network sharing and innovation around that, and it will have a significant impact on costs. Operators with more data are showing better EBIDTA, besides improving topline and bottomlines.

IPfication of the network is a must for this journey to be a DSP. But most operators have not started that journey in a significant manner. Connecting different telco networks is essential and SIP is a good solution, but there is resistance to that too. The low utilization sites are hitting the telcos hard so optimization of these sites, geo-location for alignment of these sites will be critical, and telcos have not been able to get a handle on that. Multi-mode SIP trunks - it gives voice, video, and data - not only simplifies the telco network but also simplifies things at the enterprise customer’s end. There is resistance to SIP because there is a mindset that TDM is the best. That will have to be changed.

Finally

This data wave is being witnessed globally. In Japan, for the 2020 Olympics, they have decided to skip 4K content and shoot in 8K, which requires 100 Mbps, and uses 30 Gb per hour. In India, when some of the broadband operators for home services offered unlimited plans they discovered that people were downloading 300 GB to 1 terabyte. Another broadband operator’s data consumption is up 300% in the last 18 months.

From an industry point of view, India is a $2 ARPU market. The stakeholders have to essentially focus on growing this market. So the collective wisdom as an industry should go to figure out the measures to grow this $2 pie where the government also has a big role to play. Otherwise each one will be fighting for a few pennies. They should explore how telcos can collaborate with some of the potentially high data user sectors such as education, health, logistics etc and that would facilitate investments. The question of ‘ Technology for business or business for technology” will be better handled. These sectors should join hands and go together and say Digital India will not happen unless telecom is put on priority.

Operators will have to be also very careful with the kind of technology partners they choose. Best would be those companies that have been able to transform themselves in the context of cloud and software defined networks, and made big leaps in their orchestration and virtualization capabilities. They should go with partners who are building more and more intelligence into their networks so there is more simplification for agility and speed for the operators. What will differentiate between the winners and the ‘also rans’ is the speed with which telcos will be able to transform themselves.

For the data business, the telcos will have to do something like what retail sector did 10 years back. They orchestrated a platform where all sorts of products from all sorts of sources were available for the customers. Data business will be somewhat similar.

The way subscriber numbers are increasing, the way their expectations and behaviour is changing, operators will not have a choice weather they want to become digital. So far, most operators have been aggregators of innovation. Going forward it will have to be a collaboration of all the stake holders and create a ‘Uberised’ network. The kind of innovation that we saw among telcos in outsourcing their network management and IT infrastructure, which was sort of of unheard of, we will have to see in data business.

Once again, the charter of the Voice&Data-Cisco Telecom1 program is to get the thought leaders thinking, primarily on three areas - architecture, business models, and customer experience. And we would like to get more people and stakeholders to join us to bring about far reaching changes in these areas.

The traditional telco networks were driven by 2Cs - coverage and capacity. But now AEIOU will drive the networks - AEIOU - networks which are Aware, networks which are Elastic, which are Intelligent, which are Optimizable, and networks which are Ubiquitous. Three out of these three factors are dependent on technology - aware, elastic and intelligent