It stands to reason that the Digital lifestyle of consumers will dramatically impact how operators generate revenues over the next 10-15 years. Transformations are taking place that will move activities, entertainment, commerce, healthcare, transportation, and most other aspects of our lives into Digital modalities. This has invited thousands of micro-providers of applications and networks into the mix, quickly marginalizing the value of the operator to merely an “enabling pipe.” This puts the operator into a competitive situation, ultimately impacting margins. But that’s only on the revenue side of the equation… the story could become far more complex.
For an operator, the days of 25%-40% EBIDTA are waning, if not almost gone (in many regions). Pressures on pricing remain downward, with new product offers being the primary method to sustain acceptable revenues and margins. This has opened the door for some impressive creativity by many operators, especially in developing markets. In many cases no market appears off limits, as seen by the offerings by progressive organizations like MTN in Africa: Who would have anticipated an operator would offer personal transportation services rivaling Uber?
These seemingly odd moves are, in fact, brilliant moves by operators to seek new sources of revenues as their businesses are being redefined by the digital services we are quickly becoming reliant on. The impacts on revenue models due to this change in the business are stunning: Traditional billed services like voice, and even data, are fading in importance. Revenue models are instead focusing more on casual services, pay-per-use services, marketplace services, etc. Put more simply, the “pipe” is no longer where the earning potential lies for the operator.
So now a previously non-agile, large operator business is finding itself competing with, and in many cases partnering with, literally thousands of aggressive, hungry micro-entities that provide products and services accessed by the networks. There is less reliance on monthly guaranteed revenue; the battle for revenue very often resides in millions of micro-transactions.
All of the discussion cannot focus entirely on revenues, however. Margins are also sustained by costs. Agility, therefore, must exist on the cost side of the operator business. In the old world of monthly recurring and predictable revenues, costs could be managed and allocated more confidently. Opex and Capex planning and forecasting practices were based on budgeting with a high degree of certainty. But as revenues models are changing, so must cost models. Where possible, operators will need to employ similar creativity to curbing costs, as they are with earning revenues.
How can operators, therefore, modify cost models in the business to be as aggressive and variable as the revenue models they rely upon? This is where the opportunities for SDN/NFV networks can shave significant costs, while changing operator cost models in ways that were not previously achievable.
Software-Defined Networks (SDN) and Network Function Virtualization (NFV) will allow operators to provide Network-on-Demand and Service-on-Demand models to consumers, while effectively minimizing, if not eliminating the need for human intervention. The costs associated with truck rolls, call centers, and expensive specialized network equipment will be dramatically reduced, resulting in decreased Opex and Capex burdens on the business. The savings need to expand further, however.
In current cost models, operators must deploy and maintain network services around the clock, which consumes significant and ongoing expenses. However, if a network is based on SDN/NFV architectures, the deployed services are no longer in a fixed position in the network, simply because they are now software-defined and/or virtualized. This means an intelligent network can move assets where needed, and when needed. These assets are capitalized as licensed instances; so now an operator can have a pool of 1,000 licenses for a virtual service, and deploy them only as necessary.
This type of dynamic deployment model should allow operators to negotiate dynamic cost models as well; imagine only paying for a license when you have it deployed (and it is generating revenue). While this idea may seem far-fetched, consider that now the network functions we are discussing are no longer controlled by a few network equipment and function providers; micro-entities (application developers) can now produce those functions, often at far less expensive price points.
The business transformations taking place in operators globally are forcing entirely new ways of addressing margin pressures, as the revenue and cost variables operators have historically used are no longer the same. Looking beyond margins in consumer-facing products and services, new network cost models must be explored, especially since those models were based on what is now an outdated means to earn revenues.