Contributed by By Don Alusha, Senior Analyst, ABI Research.
To date, Communication Service Providers (CSPs) have pursued growth by selling and upselling telephony products in the consumer domain. With 3G and 4G, CSPs create value by mapping upward on their “sustaining” cellular trajectory toward consumers that are not satisfied with the functionality that each cellular generation offers. For example, as shown in Figure 1, 2G introduced Short Messaging Service (SMS), whereas 3G introduced browsing, video, and photo sharing. And 4G introduced speed, capacity, and Internet Protocol (IP) telephony. Branding power and, by extension, value creation migrate upward on the technology improvement trajectory. By contrast, with 5G, the industry has an opportunity to introduce something above and beyond Mobile Broadband (MBB).
For example, with 5G, CSPs have the potential to offer edge services, low-latency local data and compute processing, Application Programming Interfaces (APIs), and ecosystem development. 5G is expected to enable expansion of the existing consumer value chain. But importantly, 5G redefines CSPs’ service delivery and value capture models. In other words, there is an operating model disruption. CSPs’ existing operating model changes, both in terms of the nature of requirements and the sheer requirement scope that must be managed. With 5G and software platforms, a CSP’s operating model will need to propel a series of business outcomes supported by a thorough knowledge of customer circumstances. Enhancing the predominant top-down operating model is a transition journey for CSPs. But it is one that holds potential for new growth avenues.
Consumer Operating Model
With 4G, CSPs’ operating model is both universal and uniform—integrate cellular networks to provide mass market, country- or region-specific subscriber static voice and data services. CSPs’ growth profiles revolve around technical excellence in cellular. Service logic resides within the network itself and is under CSPs’ control, producing positive feedback loops and outsize profits. A “build it and they will come” strategy is the starting point. What technology can be built is the foundation of a centrally governed approach. In that respect, CSPs capture profits from core to (subscriber) edge. It is an operating model where technology sets the (consumer) business agenda. It is an operating model where the buying party (subscriber) is a long way away from CSPs in terms of arm’s length. That is an all control, all top-down operating model that starts to be tested with 5G cloud networks and software.
With network cloudification and 5G, the industry structure evolves toward decentralization. In contrast to 4G, 5G Network Functions (NFs) are spatially separated from one another. A case in point is local deployments of 5G User Plane Function (UPF), paving the way for CSPs to move into edge deployments and topologies. In other words, CSPs move out of the four walls of their virtual Data Center (DC) or physical DC to place networks and compute as close to their customers as they can. In a 5G era, CSPs’ cell sites, central offices, and DCs become infrastructure hubs. CSPs’ DCs grow from hundreds to potentially thousands, Virtual Machines (VMs) proliferate from hundreds to thousands, and networks increase from tens in central environments to hundreds at the “edges.” Consequently, CSPs shift from centrally hosted workloads in their DCs to a combination of central- and edge-hosted workloads in both partners’ and CSPs’ DCs.
Clearly, in a 5G era, the cellular ecosystem moves away from the “closed” and inflexible order of hierarchy toward openness and the fluidity of decentralization. And that, in turn, triggers structural changes not just in how next-generation 5G networks are designed, but also in the operating model required to commercialize those networks. These changes stand to be the pivotal axis for the emerging competitive landscape. For example, in software-centric 5G networks, there are constantly changing requirements, and there is customer- and/or service-specific connectivity. In this commercial setting, vectors like commercial focus, strategies, and operating models to execute start to be tested. Subsequently, a challenge that CSPs must contend with is on the operating model front. But the innovation potential that comes from modernizing existing cellular practices outweighs the transient challenges CSPs will have to face.
Strategize Bottom-up for a Successful 5G Journey
There is a growing demand for partners that understand customer requirements. For example, in the retail industry, for Sainsbury’s, the second largest chain of supermarkets in the United Kingdom, the requirement is not on the technology per se, but rather the business outcomes technology enables. Technology for Sainsbury’s is important as far as it enables the company to deliver on business goals. Sainsbury’s is interested in (any) technology supplier that can propel a whole series of business outcomes for it. For instance, speed of check out; how quickly they can get somebody through a register; how much shopping can Sainsbury’s digitally get inside a store; and how much data can Sainsbury’s deliver reliably to an end point (customer in store) are business outcomes it seeks to achieve. Ultimately, for Sainsbury’s, much like other enterprises and industrials, it comes back to what it wishes to achieve as a business. In other words, Sainsbury’s is on the lookout to buy solutions.
Clearly, enterprises define quality within the context of a “job to be done.” What enterprises need is the starting point. Their business outcomes set their partners’ technology agendas. In the emerging market landscape, there will be enterprise-specific, market-specific value-based engagements. Against that backdrop, CSPs will almost certainly need to learn to drive value bottom-up. In addition to continuing to excel in mass market MBB business, CSPs should adopt new business models. For example, CSPs should cater to a diverse set of application requirements, different services, and different connectivity needs. In other words, CSPs should build their growth profile starting from (enterprise) edge requirements and extending to (network and/or compute) core operations. This bottom-up, value-capture operating model equips CSPs and their peers with the readiness to intimately understand unmet individual customer requirements and respond in a targeted fashion.
5G cloud networks stand to unlock new transactions that supplement consumer volume-centered modus operandi with a bottom-up value play for discrete engagements. But the power of a bottom-up model is not enough. To monetize 5G-enabled digital services at scale, some of the existing top-down intelligence is needed, too. Learning how to operate in this hybrid top-down and the emerging bottom-up, horizontally stratified ecosystem is a journey for CSPs. Going forward, an effective and efficient operating model must contain both control and lack of control, both centralization and decentralization, and a hybrid of bottom-up plus some of the “standard” top-down intelligence. The idea is that CSPs’ operating models should flexibly fit and change in line with new and elastic market requirements as they continue their 5G journeys. Otherwise, new growth forays may hit a roadblock.
About the Author
Don Alusha is a Senior Analyst in the Telco Digitization practice at ABI Research where he provides research and analysis on service provider adoption of cloud technologies and their application in fixed and mobile networks. Pertinent research topics include Artificial Intelligence (AI) and Machine Learning (ML) technologies, Software-Defined Networking (SDN), Network Functions Virtualization (NFV), telco software, and applications.
About ABI Research
ABI Research is a global technology intelligence firm delivering actionable research and strategic guidance to technology leaders, innovators, and decision makers around the world. Our research focuses on the transformative technologies that are dramatically reshaping industries, economies, and workforces today.
For more information about ABI Research’s services, contact us at +1.516.624.2500 in the Americas, +44.203.326.0140 in Europe, +65.6592.0290 in Asia-Pacific, or visit www.abiresearch.com.