Summary: To date, discussions of the benefits to telcos of NFV and SDN have mainly focused on reducing operating and capital costs, while the impact on future telco revenues has been somewhat sketchy. In order to fill this gap, this report outlines a comprehensive set of potential new "telco cloud" services, and forecasts associated revenue growth. (Executive Briefing Service, April 2016)
Below is a 3 page extract from this 51 page Telco 2.0 Report that can be downloaded in full in PDF format by subscribers to the Executive Briefing Service here. The full report includes an Executive Summary, along with further detailed content and figures outlined below the extract. To find out more about how to join or access this report please see here or call +44 (0) 207 247 5003.
The telecoms industry is embracing network virtualisation and software defined networking, which are designed to both cut costs and enable greater agility. Whilst most operators have focused on the operating and capital cost benefits of virtualisation, few have attempted to define the range of potential new services that could be enabled by these new technologies and even fewer have attempted to forecast the associated revenue growth.
This report outlines:
This report does not discuss the cost, technical, organisational, market or regulatory challenges operators will need to overcome in making the transition to SDN and NFV. STL Partners (STL) also acknowledges that operators are still a long way from developing and launching some of the new services discussed in this paper, not least because they require capabilities that do not exist today. Nevertheless, by mapping the opportunity landscape for operators, this report should help to pave the way to fully capturing the transformative potential of SDN and NFV.
To sense-check our findings, STL has tested the proposed service concepts with the industry. The new services identified and modelled by STL were shared with approximately 25 telecoms operators. Hewlett Packard Enterprise (HPE) kindly commissioned and supported this research and testing programme.
However, STL wrote this report independently, and the views and conclusions contained herein are those of STL.
Most telecoms operators are facing significant competitive pressure from rival operators and players in adjacent sectors. Increased competition among telcos and Internet players has driven down voice and messaging revenues. Whilst demand for data services is increasing, STL forecasts that revenue growth in this segment will not offset the decline in voice and messaging revenue (see Figure 5).
Figure 5: Illustrative forecast: revenue decline for converged telco in advanced market
Source: STL Partners analysis
Figure 5 shows STL forecasts for revenues over a six-year horizon for an illustrative converged telco operating in an advanced market. The telco, its market characteristics and the modelling mechanics are described in detail later in this report.
We believe that existing ‘digital’ businesses (representing consumer digital services, such as IPTV and managed services for enterprises) will not grow significantly on an organic basis over the next six years (unless operators are able to radically transform their business). Note, this forecast is for a converged telco (mobile and fixed) addressing both enterprise and consumer segments; we anticipate that revenues could face a steeper decline for non-converged, consumer-only or enterprise-only players.
Given that telcos’ cost structures are quite rigid, with high capex and opex requirements to manage infrastructure, the ongoing decline in core service revenue will continue to put significant pressure on the core business. As revenues decline, margins fall and telcos’ ability to invest in innovation is curbed, making it even harder to find new sources of revenue.
However, STL believes that new technologies have the potential to both streamline the telco cost structure and spur growth. In particular, network functions virtualisation (NFV) and software-defined networking (SDN) offer many potential benefits for telcos.
Virtualisation has the potential to generate significant cost savings for telcos. Whilst the process of managing a transition to NFV and SDN may be fraught with challenges and be costly, it should eventually lead to:
In addition to cost savings, virtualisation can also allow operators to become more agile. This agility arises from two factors:
As the new infrastructure will be software-centric, as opposed to hardware-centric, greater levels of automation will be possible. This new software-defined, programmable infrastructure could also increase flexibility in the creation, management and provisioning of services in a way that is not possible with today’s infrastructure, leading to greater agility.
Virtualisation will also change the telco cost structure, potentially allowing operators to be less risk-averse and thereby become more innovative. Figure 6 below shows how virtualisation can impact the operating model of a telco. Through virtualisation, an infrastructure player becomes more like a platform or product player, with less capital tied-up in infrastructure (and the management of that infrastructure) and more available to spend on marketing and innovation.
Redefining the cost structure could help spur transformation across the business, as processes and culture begin to revolve less around fixed infrastructure investment and more-around software and innovation.
Figure 6: Virtualisation can redefine the cost structure of a telco
Source: STL Partners analysis
This topic is explored in detail in the recent Executive Briefings: Problem: Telecoms technology inhibits operator business model change (Part 1) and Solution: Transforming to the Telco Cloud Service Provider (Part 2).
...to access the other 47 pages of this 50 page Telco 2.0 Report, including...
...and the following figures...
...Members of the the Executive Briefing Service can download the full 51 page report in PDF format here. For non-members, to find out more about how to join or access this report please see here or call +44 (0) 207 247 5003.
Technologies and industry terms referenced include: agility, APIs, augmented reality, capex, CDN, CPE, devops, edge computing, IaaS, IoT, low latency, NaaS, NFV, opex, revenue, SaaS, SDN, telco cloud, virtual reality, virtualisation, VMNO