Up against mounting cost pressures and stagnant revenues, operators need to undertake technological and business model transformations if they want a chance to drive growth and monetize 5G investments
AUSTIN—Operators have not effectively monetized 5G. From consumer-facing mobile bundles and home broadband delivered by fixed wireless access to private enterprise networks and custom 5G/edge computing-enabled solutions, none of it has created a meaningful lift in revenue. The optimism around 5G as some sort of panacea to any sort of business problem is giving way to disillusionment. Cost pressure is mounting, headcount reductions are happening, and outright cynicism is in the offing. This raises a question: if operators, for whatever reason, cannot leverage 5G to grow revenues and deliver innovation, do they drop the pretense and face the harsh reality that connectivity is a commodity and should be sold as such?
“There’s a growth imperative in business even if you’re a utility,” Dell Technologies’ Dennis Hoffman told me during the Big 5G Event hosted this week in Austin, Texas. Hoffman is a senior vice president and the general manager of Dell’s Telecom Systems Business. Dell has a strong telecom play in that mobile networks are becoming more IT-like, workloads are moving into various clouds, and compute is being distributed out of centralized data centers. All of that requires servers, services, enterprise know-how, and the ability to assemble an ecosystem; Dell does all of that quite well and at a global scale.
So how does that map to operators’ pressing need to grow? There’s a cynical perspective here that it doesn’t really need to because, in the absence of the ability to capture new markets, the move to cloud and software also reduces operating costs making it inevitable. But the optimistic perspective, as articulated by Hoffman, is that operators have “a desire to climb the stack and offer higher-value stuff on top of communications services. That also monetizes the network. The higher up we are in an operator, when we speak to the CEO, the C-level folks, the more likely the conversation is to start on what can we do together to drive revenue growth.”
To reach that potential future state where 5G makes money and operators are a going concern, Hoffman sketched out two primary impediments that need to be overcome: evolving open network architectures are tougher to deal with than legacy systems, and there’s clear organizational risk to walking away from the status quo. “The open architecture is fundamentally hard for a network operator to consume—test, trial, deploy and most importantly operate/maintain,” he said. “That whole chain, it gets harder and harder with an open architecture.”
As for taking a risk and doing things differently, Hoffman recalled a conversation with a mentor who passed on the adage of people only being motivated by making money, saving money and staying out of jail. As it relates to introducing open architectural components into established networks, “You’re not going to explain to anybody that removing today’s architecture is less risky. For the brownfield [operators], it all kind of comes down to cost. If you can’t prove revenue growth…you’ve got to prove lower cost.”
Hoffman gave a clear and candid perspective on where this whole thing is today using the example of Open RAN, an ideological movement to some, standardization of open interfaces to others, and platform for innovation and automation to the true believers. He posited the question, is Open RAN software on top of an abstraction layer running on an x86 server cheaper than an integrated baseband? “The answer is likely no at the moment, but…that will tip at some point.”
This highlights the delta between how technology incrementally improves and occasionally leaps forward, and how large companies struggle with rapidly implementing change management and otherwise halt organizational inertia. Tech being easier to deal with than people was something of a theme in the conversations I had at the Big 5G Event. And last week at the Wireless Infrastructure Association’s ConnectX show in New Orleans. And two weeks before that at RCR Live: Telco Reinvention in London.
That last show, hosted by this publication, was all about this idea that operators are potentially approaching an existential crisis and need to do something. Whether they undertake a reinvention to embrace the utility-type model or boldly try to transform into a “tech-co” is an open question and your mileage may vary by market and company. But the point remains that what’s happening today within most large-scale operators can’t continue for much longer.
In an interview on the sidelines of RCR Live: Telco Reinvention, AWS Director of Solutions Architecture for Telecommunications Chivas Nambiar was bullish on the tech-co pivot. “We’re seeing green shoots of that with some of our forward-facing telcos,” he said. These firms are less focused on the “utility nature of a telco and more about what do their customers—the consumers and the enterprises—really want. They’re deeply invested in understanding the use cases they want to build. They’re invested in finding partners and technology choices that allow them to serve that need, and to do it in a much faster fashion than they’re used to.”
Nambiar continued: “To think big in this industry is to say, ‘Where do we want to place bets longer term?’ But to get to those bets, I think we have to move away from a world where those were large, capital-intensive bets, and that’s where thinking small and practical comes in.” Perhaps more importantly than the underlying technology, he sees the most pressing reinvention around culture and people.
What are operator executives thinking? Speaking alongside Nambiar in London, Orange’s Vice President of Technology, IT and Strategy Khaoula Slaoui picked up on Hoffman’s points around open architectures and distributed cloud as a big piece of saving money, making money or, ideally, both. Cloud-native open networks are “one of the bets” Orange is placing, she said. “You can put whatever hardware and run whatever software you want to run whatever network function you want…This is one of the biggest bets, and we have challenges” around both technology and application-specific business models.
Taking an even bigger picture view, Slaoui explained, “When I hear growth nowadays, I think of the planet and the environment actually. And I ask a question to myself, whether we should fight for growth and finding that growth, or we should fight for our planet and stopping growth…Telco and all technology players, we have a big role to play in it. So we are in a crisis…The earth is in a crisis…and our business is in crisis. Everything is in crisis. How do we move forward with this? I don’t have the answer actually. All that we can do is to think together.”
Back to Nambiar on what operators need to do to realize growth, again hitting this theme on the people being more of a gating factor than the tech. “A growth mindset does not come when there’s a fear-based culture and a lot of telcos have been very rigid hierarchies, and the structure is you make a mistake then you are in trouble…This kind of growth mindset is super important.”
Similar thoughts from Slaoui about day-to-day challenges being primarily people-centric. “In the telco area, people, they progress based on their expertise. And at a certain point they become experts in some technology in some area. And we have been feeding them with these ideas that they are experts and they are valuable. And when they think about change, [they] think about themselves losing their expertise and them losing all their value. The biggest transformation is changing this mindset.”
In addition to the need to better empower the wireless workforce as it is today, in demand skill sets are changing and the pipeline of future talent seems a bit clogged. During a presentation at the Wireless Infrastructure Association’s annual ConnectX show in the Big Easy, Verizon’s Nicki Palmer, who’s currently serving as chief technology ambassador ahead of her upcoming retirement from the company after 33 years, laid out the workforce trends. She went through projections for unfilled software engineering positions in the U.S., historically low unemployment, wage inflation, and concerning metrics around the amount and diversity of university students studying STEM subject areas.
Tying it to growth, Palmer called for responsive strategic workforce plans. For operators, she said, “If you’re worried about your technical strategy…what spectrum you’re deploying and when and what number, what products and services…it’s not sufficient. You must have the same level of intensity on who are the people that are going to be doing this work for you…It’s about how do we work together to tackle this problem for today as well as fuel our growth for the future.”
Returning to this perception that the world is in crisis and telco is in crisis, is there a way to still grow while navigating the seemingly endless downward spiral of modern life? In a talk that invoked E.M. Forster, Edgar Allan Poe and Nikola Tesla among other innovators, Arthur D. Little Principal Fareeda Ahmed outlined growth opportunities available to operators. But it wasn’t all doom and gloom as Ahmed pointed out that if necessity is the mother of invention, then crisis is its father.
In terms of crises impacting the telecoms industry (and everyone and everything else really), Ahmed called out the still unfolding impacts of the COVID-19 pandemic, the likely long-term Russian war against Ukraine as a proxy for NATO, the long tail of climate change, and financial system turbulence related to, but not specifically limited to, the previous three global issues.
With regard to COVID-19, “If we’ve learned anything from this crisis, it’s that this type of crisis can happen again.” On Russia’s invasion of Ukraine, “This crisis isn’t going to be resolved overnight.” Climate change—”For telcos specifically, the impact on operations and infrastructure, the life of assets, and on top of that, the increasing demands that telcos ourselves are putting on the climate, on the environment, there doesn’t seem to be a way out of that…immediately.” Global financial system meltdowns—pick a (credit) card–any number of factors, many related to the aforementioned forces, some not directly related, could push us into macro inflation, interest rate rises, or even a global recession.
If that weren’t enough, one more: “Humans have lately invented a rifle that can turn itself into a nuke which we call AI. I’m very much an optimist and believe in the power of technology to solve a lot of our problems.” But with AI, “There is definitely the possibility of existential threat and there’s certainly the fear of existential threat.”
We’ll endeavor to expand coverage of Ahmed’s presentation and interview in the near future, but to crib her messaging, the principles of growth in crises are responding to externalities with innovation, avoiding a fear mindset in favor of a growth mindset, willingness to transform business models and process, and correlate soft skills like values, collaboration and humility with organizational resilience. The four vectors of growth telcos can work on are investment in offense and defensive innovation, recognize and execute when a business model needs to change, understand consumer preferences globally and locally, and manage for sustainability.
All that to say, as it stands the problem seems relatively clear–the bevy of black swans aside–and the solution is something taught to every business school student on earth. Meanwhile, Orange’s stock price is about half of what it was two decades ago, Vodafone announced it’s laying off 11,000 people, and the most interesting 5G-enabled service in the market with some kind of scale is cellular internet but at your house this time.
