What is the current state of CSPs’ network transformation efforts? This article is from our new research report, Digital Transformation Tracker 1: The race is on. The Forum surveyed 185 executives from 93 unique CSPs operating in 64 countries, and 175 executives from 75 unique supplier companies and conducted dozens of follow-up interviews.
Communications service providers (CSPs) spend about 90 percent of their capital expenditure (CapEx) budget on the network, so it would be reasonable to assume that network transformation represents a core component of digital transformation. But this is not necessarily the case. In fact, digital transformation is typically more closely associated with the IT organization than the network division.
There are good reasons why. Many of the operational and business support systems (OSS/BSS) CSPs use are the same ones deployed before the era of broadband communications, yet networks have been upgraded regularly (in some cases replaced) as mobile technology has evolved and as CSPs have deployed fiber.
But network transformation can, and often does, serve as a catalyst for change in other parts of the business. Network functions virtualization (NFV) is part of high-profile strategic programs that are even broader than digital transformation programs. Examples include:
In practice, network transformation cannot be isolated as a separate initiative from digital transformation programs. Networks need to be managed and connected to a whole range of business and customer functions. CSPs understand that these systems, traditionally referred to as OSS and BSS, must be completely redesigned to benefit from the real-time, customizable capabilities that virtualizing the network and moving it to the cloud can deliver.
Moving to the cloud
Many CSPs are now moving parts of their networks into the cloud and deploying NFV and software-defined networking (SDN). Half of respondents to our survey said they are already virtualizing at least some network functions, and 32 percent plan to do so in the next 12 months.
This represents a healthy increase from our survey in 2016 when only 36 percent of operators were deploying virtual network functions (VNFs).
Where are CSPs deploying VNFs?
There is no agreed approach for how, where and when to deploy VNFs. We asked CSPs about functions in three specific areas:
- Evolved packet core (EPC)
- Customer premises equipment (CPE)
- Mobile edge
One in five respondents said they are deploying NFV in the packet core. This figure is surprisingly high given that most CSPs would be unwilling to deploy non-standardized solutions and that 3GPP – the standardization body responsible for 5G – won’t produce a new standard for the 5G packet core until the end of 2018.
Delivering virtualized CPE and offering network as a service (NaaS) is one of the hottest segments of the NFV market, with significant carrier activity in Europe and North America. This is because it’s an easy business case to prove: Reducing truck rolls to customers’ locations lowers OpEx significantly.
At the mobile edge, NFV deployment will be essential for CSPs to deliver the millisecond latency promised for 5G. It will also enable CSPs to push data center functions out to the edge of the network, which will become crucial as the number of IoT devices increases. It will be necessary to process data from those devices locally.
Proving the concept
CSPs are conducting huge numbers of trials as they work to build business cases for NFV and SDN deployment.
Nearly 60% of suppliers said their customers are at the proof-of-concept stage in NFV deployment.
Indeed, several suppliers privately expressed their frustration about the number of proofs of concept they are being asked to run before transitioning to a commercial relationship.
Close to a third of operators said they have no plans at all for NFV deployment. These are typically smaller CSPs, many of them in emerging markets.
What’s holding up NFV deployment?
The industry finds itself somewhat in limbo, recognizing that NFV and SDN are the future but at the same time being uncertain about how to get there. Some of the biggest challenges relate to the commercial relationship between supplier and operator, while other issues are similar to the inhibitors to digital transformation more broadly – culture, skills and organizational alignment.
We asked survey respondents to rate the seriousness of several potential inhibitors to NFV deployment, where ‘1’ was not serious at all and ‘5’ was very serious. We’ve ranked them below based on their average rating.
Where’s the business case?
It’s significant that the lack of a compelling business case was the biggest business inhibitor cited by both CSPs and suppliers, with 42 percent of CSPs and 43 percent of suppliers saying it is a ‘very serious’ or ‘moderately serious’ challenge.
What are the technical challenges?
The need for new agile OSS/BSS and sophisticated orchestration capabilities are among the top operational concerns for CSPs and suppliers, with more than 50 percent of each citing OSS/BSS as a significant challenge. Perhaps expectedly, suppliers are less concerned about the immaturity of current products and standards. Only 12 percent of them see the lack of standards as a ‘very serious’ inhibitor.
Not if, but when
It remains unclear whether CSPs will be successful with overall digital transformation efforts, but they will accomplish network transformation. Network improvement is in the DNA of CSPs, and they and their suppliers are confident they will be successful virtualizing the network and adopting cloud technology.
This is not to say it will be painless. Indeed, one senior executive in a network division referred to the “chasm” that exists between the state of its current network organization and where it needs to be.
To bridge this chasm, CSPs will need to:
- Build their own internal software capabilities and ensure that the new skills are embraced and reused by the rest of the organization
- Rethink OSS/BSS functions, processes and organizational teams
- Partner with new suppliers – and be willing to sacrifice long-standing relationships with existing suppliers if they are unable to deliver solutions that can work as part of an ecosystem
- Change the culture within the network division and move away from the traditional approach which is simply to buy and deploy capacity