Laurence Norman, Chief Architect, NTT DATA UK
5G is many things to many people, and is – at the end – a placeholder name for the convergence of a range of technologies, standards and capabilities which will undoubtedly deliver innovative services as well as disrupting entire classes of business.
Our belief is that operators are best suited to deploying these difficult technologies to enable themselves and others to build novel products and services on top of them. One of the main innovations enabled by these technologies will be a new type of platform business.
These business models rely on scale (and scaling up fast). The estimates on the number of connected devices by 2020 vary widely. Latest estimates from Gartner and IDC put the number conservatively in the 10 billion range (plus smart phones) – and with plenty of multi-year growth. This generates a classic network economic effect of its own as well as opportunities for a plentitude of targeted vertically integrated use cases.
The creation of a platform model can be seen as an exciting move into a truly digital business and it can be seen as a terrifying disruption to an existing and successful business model. No one knows how it will shake out. Forward thinking operators such as NTT are already embracing the B2B2X models, and seeing material uptick in revenues. Arthur D Little estimates the B2B2X model could be worth €276Bn by 2020 and CSP are well placed to grab a large proportion of this.
As with all innovations, there are challenges to face. If addressed (even embraced), the opportunities for future profitable revenue growth are enormous.
Challenge 1: How accountants count (and how shareholders behave)
The international telco industry has been using standard business performance metrics for decades, which has helped define the growth of individual businesses and has been a useful benchmark against which companies are compared.
Metrics such as ARPU and AMPU even made sense for the period of locked in contracts, device subsidies and service contracts; especially for their ability to accurately forecast future revenues. However, it began to stifle innovation fairly early on. The first attempts to separate handset revenue from service revenue stumbled upon the „ARPU“ impact. i.e. the key industry performance metric would actually reduce for the first company to adopt this business model innovation, and would be perceived as performing badly against their peers.
In the emerging platform eco-systems, new measures of business performance will be developed which better represent the kind of multi-sided business models which will emerge. ARPU has no relevance when there is no overall ‘User‘.
Recommendation: Develop new primary business KPIs. These new metrics must be designed to motivate desired outcomes throughout the organisation. For example, encourage rapid creation of new products on the platform, embed an experimental mindset, increase the number of partners and increase areas of automation.
Challenge 2: Embrace a new Culture
CSPs have performed well over the last few decades following their classic pipeline business. That is, they own and control the primary product (connectivity) and they procure and distribute through their own sales channels. Prior to the iPhone, they even had some control of the devices being built.
In essence CSPs are culturally conditioned to control as much of the value chain as possible. From handset subsidies to the attempt at content walled gardens.
In the platform world, a business can afford to sacrifice margin for scale and enable others to generate value on top of your underlying capabilities. It requires the operator to be brave enough to release control. On the flip side, operators excel at providing end to end integrated service management (i.e. an assured service to the end customer) – and this kind of engineering expertise and deep cultural respect for customer experience is an asset which operators should continue to exploit.
Recommendation: encourage and embed experimentation and rapid governance decision making into the organisation through deployment of new operating models. These are multi-modal in nature with stable and predictable approaches for the classic CSP business, and more fluid approaches for the platform business. As well as enabling ‘fail fast’ experimentation, the digital CSP must ‘scale fast’ to take immediate advantage of business opportunities.
Challenge 3: Learn to Partner nicely
Operators have a reputation for being hard to partner with. They are organised around large long term deals with big companies. Wholesale arrangements, roaming and interconnect deal take months of negotiations and teams of lawyers to complete. The 5G platform business on the other hand is about enabling hundreds of smaller entrepreneurial companies to create value (or fast moving parts of the operator’s new digital business). This needs an entirely different way of working. It needs one click contracts, and simple terms. It needs zero touch processing and rapid, stress free settlement. It also needs a mindset shift to treat partners a new stream of revenue and as important to you as your end customers are now.
Recommendation: As part of the platform business, build systems and processes (and organisations) optimised to identify, onboard and manage a broad range of large, medium and small companies.
Challenge 4: Systems Integration
Many of the challenges facing operators in the age of 5G, platform business and digital disruption have become a systems integration problem. The drive towards commodity IT infrastructure, virtualization techniques and software driven functions underpin this statement.
Many network equipment providers are attempting to build consulting and service arms and are struggling to come to terms with their own cultural legacy. Conversely, IT systems integrators are moving cautiously into the network world where scale and high performance requirements are causing their own problems.
Recommendation: Look for systems integrators that partner well and are easy to do work with. Those integrators who work with and contribute to TMFORUM standards Companies that can call on deep network knowledge as a technology supplier as well as knowledge of actually being an operator. Also look for partners who can call on strength in business and cultural change consulting expertise to help navigate through the exciting changes ahead.
In conclusion, the advent of 5G technologies will enable a broad range of new, innovative and disruptive services. Operators are well placed to maximize the value of the investments they made by scaling out into a platform business, but they need to embrace the necessary change. Selecting technology partners with the right combination of business change, technology systems integration and access to deep network knowledge will allow CSPs to accelerate their transformation journey. Oh – and buy a new calculator.
Laurence Norman is the Chief Architect at NTT DATA UK and has more than 20 years in the telco media industry. Working on a wide range of advisory and delivery projects, Laurence is a passionate believer in the power of technology as a vehicle for change.