Telecommunications Industry Changes: What's Next

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What's happening in the telecommunications industry today is explosive -- three-dimensional growth on all fronts, making it challenging for enterprises to determine the best strategic course forward.

A snapshot of the industry over recent decades provides historical perspective, but is not necessarily a good predictor of future success. For example, the '70s and '80s were a period of moderate growth, which included expansion of existing plant/subscriber base in developed nations, but stagnation in the developing world. Mainframe/dumb terminals declined, and the use of PC-based corporate networks increased.

In the '90s, the industry experienced accelerated growth and the privatization of state-owned ILECs. Mobile telephony moved into the mainstream and cannibalized the growth of the fixed plant. Internet took center stage with access from dial-up to broadband (xDSL and HFC). Central and Eastern Europe struggled to catch up with its EU neighbours in the West, Caribbean and Latin American countries worked to keep pace with U.S./Canada, and emerging Asia with developed Asia.

In the late '90s & 2000s, telcos and new CLEC companies overbuilt access network infrastructure, creating overcapacity during the dot-com boom. Overcapacity pushed access prices down, driving many of the new CLECs into bankruptcy during the dot-com bust years. During this time frame, mobile and Internet took center stage globally.

Much of the first decade of the 21st century was spent cleaning up the mess of the Internet bubble. Results included bankruptcy/restructuring of CLECs and acceleration of M&A (both domestic and cross border).

Today, the signs of an industry in its maturity are clear:

  • Mobile and smartphones are here to stay -- voice/data/video are delivered on the same broadband data pipe (VoIP, IPTV)
  • Minutes of long distance voice telephony have no monetary value (free IP voice: Skype, WhatsApp)
  • Carriers are trying to reinvent themselves as the path to organic growth narrows, and no more attractive mergers and acquisitions are on the horizon. Acquiring content providers (NBC Universal/Comcast, AT&T/Time Warner) seems to be the only safe bet!

Some examples of stagnant growth include:

  • Fixed telephony trend in 2016 was completely flat globally, with single digit decline in all regions
  • Mobile growth in 2016:
    • Europe and Africa - completely flat
    • Americas – Slight decline
    • Oceania – minimal growth
    • Asia -- still grow at almost 7%, driven by accelerated growth in emerging Asian markets

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NRI (Network Readiness Index) from World Economic Forum (WEF)

Network Readiness

  • NRI evaluates the relative level of development of countries with respect to Information and Communication Technology (ICT)
  • NRI is built based on statistical data cross-referenced with a survey of opinion among executives participating in the WEF
  • The sub-indices that make up NRI are grouped into three components that form the final index: environment, readiness, and utilization
  • Top 15 are dominated by EU nations, with Scandinavian countries leading the pack
  • Singapore leads the NRI for almost a decade with only Japan and South Korea in the top 15 together with Hong Kong (way ahead of China)
  • Only the U.S. and Canada represent the Americas, and there's no representation from Africa and Oceania in the top 15

So what does the future hold and what does each segment of the industry need to do to survive?

Mobile Forecast:

  • 3G/4G will evolve into 5G and beyond -- higher speeds for mobile broadband (smartphone, tablet, etc.) as well as for IoT (critical and mass market apps) and fixed wireless broadband
  • New spectrum bands will be introduced and auctioned but with the same trade-offs as before: higher frequency bands to deliver more bandwidth but for shorter distance
  • Increase capacity while reducing the cost per bit for mobile broadband
  • To attend the applications mentioned above, 5G will have to offer: higher speed (above 10Gbps-30x over 4G), higher connection density (1M/Sq Km -- 100x over 4G) and lower latency (1Msec)

Backbone/Access Forecast:

  • Long haul: Fiber optic cable backbone will continue to be the main pipeline for fixed broadband access and will continue to co-exist/complement PTP/PMP microwave radio
  • Last-mile access:
    • Copper wire pair and coaxial cable are still the most economical solution (where available) so FTTH on a broad massive scale is still some years away (due to costs)
    • Wireless (Wi-Fi, WiMax) will continue to complement wireline infrastructure where the latter is absent (rural and suburban areas) or does not provide full coverage of the entire metropolitan area
  • Enterprise trends: Both applications and data are stored in the cloud, an evolution of the "old" data center model (Motive: availability/reliability/redundancy/backup/UPS
  • Ethernet cable and Wi-Fi will continue to co-exist, connecting users (local/remote) to the corporate network

Service Provider Forecast:

  • Traditional carriers will continue to bundle multiple services for a fixed low price, while cable companies (many of whom lack mobile service in their portfolios) complement their short fall with MVNO modality
  • Service provider transition to SDN and NFV will continue to reduce operational costs and offset legacy voice revenue declines. For example, U.S.-based AT&T affirmed it will have virtualized 55% of its network by year-end 2017, bringing it closer to its goal to have 75% virtualized by 2020
  • Internet giants will continue laying/expanding their own undersea cables at their own expense, and will increase the already intense competition in the international long-haul data transport with the telecom carriers
  • More than two-thirds of the digital data moving across the Atlantic is traveling on private networks -- namely networks operated by the likes of Google, Microsoft, and Facebook -- up from 10% just a few years ago, according to Telegeography Research
  • Internet giants need "high speed pipes" to support their data hungry operations:
    • Google -- Search engine Gmail, Google Docs, Google Maps, Google Cloud Platform, and so many more
    • Microsoft -- Bing, Office365, Outlook/Hotmail e-mail services and its Azure cloud services
    • Facebook -- social network along with Facebook Messenger, WhatsApp, and Instagram
    • Amazon --retail platform and cloud services (AWS, Vadata)

Equipment Manufacturer Forecast:

  • Telecom equipment makers can no longer survive selling only hardware only.
  • Routers, switches, and other network backbone equipment are commodities. For example, Juniper's recent quarterly report (3Q17) showed:
    • Routing: Down 6% year-over-year and up 2% sequentially
    • Switching: Down 4% year-over-year and up 23% sequentially
    • Security: Declined 17% year-over-year, but was up 4% sequentially
    • Services: Up 9% year-over-year and down 1% sequentially
    • Financials: Down 2% year-over-year and 4% sequentially
  • Opting for joint ventures or mergers/acquisitions has proven beneficial for ensuring survival of these companies trying to make money on services like SaaS, cloud, and turnkey/maintenance contracts. One example of such a joint initiative is Google and Cisco's agreement to team up to take on Amazon. The partnership combines Google's expertise in building massive data centers and open source software with Cisco's global salesforce and customer support. The idea is that together, both companies believe they can develop products to use to catch up to Amazon in cloud race.
  • In order to survive in the new environment, equipment makers would have to target telcos who will be spending in preparation for 5G, metro build-outs, and providing solutions that are more virtualized and software-based like SD-WAN (delivering great value to enterprise customers of telcos)

Role of Consultants in the Evolving Industry

Technology, Media and Telecom (TMT) consultants must have expertise in multiple areas to support their clients through the changes: Background in-house, service provider wireline/wireless networks and infrastructure, devices and applications, video infrastructure, content, pay-TV and broadcast models, enterprise IT and technology (including cybersecurity, cloud, IP communications/UC and apps, data centers and virtualization, and consumer technologies).

To capture projects in this dynamically changing environment, a successful TMT consultant organization should offer vertical geographic coverage across regions/continents.

While explosive growth and implosive industry changes affect all segments of the industry, there will continue to be profitable and interesting roles for players who can evolve with the rapid changes.

"SCTC Perspectives" is written by members of the Society of Communications Technology Consultants, an international organization of independent information and communications technology professionals serving clients in all business sectors and government worldwide.

[Editor's note: Edward Moran and Elizabeth English both contributed to the writing of this article.]