Shervin Gerami, CEO of TeleWorld Solutions, attended the Mobile World Congress in Barcelona Feb. 22-25, an annual gathering for the telecommunications industry. Before he left, he and Oleksiy Shevchenko, our senior infrastructure engineer, shared some thoughts on the evolution of carriers into Digital Service Providers.
Everyone in the industry knows that the way people are using their mobile telecom services has changed significantly over the past several years. Every year more and more people move from simple voice/SMS services to data services, including social media apps, free communication apps such as Viber and Skype, and others.
According to Deloitte, “The telecom sector continues to be at the epicenter for growth, innovation, and disruption for virtually any industry.” The consulting firm points to the momentum growing around major trends such as video streaming, mobile payments, and the Internet of Things (IoT).
These trends present a challenge for cellular service providers who don’t want to be just a pipe to Internet resources and let profits go to Internet companies and “over-the-top” (OTT) services that piggyback free on telecom systems. Providers want to be part of the game and conduct more and more transactions through digital channels. This change pushes the telecom industry to adopt new business model(s) and become digital service providers, or DSPs.
Making the move to become DSPs means telecom service providers can no longer rely on traditional business models or legacy IT systems in their evolution. It requires fundamentally new solutions and approaches, which include network functions virtualization (NFV) and software-defined networking (SDN). They will be looking to offload more mobile traffic onto broadband and fiber networks while evaluating other spectrum efficiency technologies and LTE-U. They’ll be adopting Voice over LTE (VoLTE) and Voice over Wi-Fi (VoWiFi) services in order to help them maximize their networks as they consider offering improved and expanded services of their own.
As DSPs, they will have the flexibility to rapidly develop, test, and provide different services, products, and models through rapid and effective development offered by the new SDN and NFV technologies. They will be able to try things out and build sandboxes, as well as one solution for one customer and a completely different one for another. They will be able to increase their B2B products portfolio.
The big challenge we see is how operators will handle switching from a single, well-established business model to multiple business models. Under the old model, telecom providers made plans years in advance to make a new service offering, ordered new equipment to support it, and then hoped that someone would use it and that it was not already outdated.
The shift to becoming DSPs directs how telecom companies try to monetize their investments. So far, the results have been mixed. Global operators’ revenues are stagnating, even as operating and capital expenditures are increasing. Meanwhile, the OTT players are gaining in number and popularity, making the traditional operators’ task that much more difficult.
The telecom companies will need to become better at monetizing the delivery of new products and services that have become necessary to the customers for everyday use. Rather than competing on price, providers must optimize revenues from different customer segments, especially those segments that are less price sensitive and that value service quality and superior customer experiences.
Telecom firms will likely face a gap between the cost to deploy, maintain, and upgrade the networks needed for the growth in traffic and the revenues they can generate from that traffic, especially in emerging markets, where the average revenue per user is low. If regulators fail to devise new schemes to maintain a healthy economic model for operators that will allow them to continue to invest to meet exploding demand, the gap will continue to grow.
But the carriers’ fates are not predetermined. Through investment in modernized networks and new technologies and creative thinking about both where the market is now and where they think it will head, they can become DSPs and find ways to add value to the consumer experience.