Service Providers Without Networks?
I count myself among the many people around the globe mourning Steve Jobs. I think the main reason he made such a big impact is that he questioned some basic assumptions. One of the key assumptions he questioned was the belief that every phone needed a keypad – try and remember how radical this notion was at the time. I still remember colleagues telling me it would never work and that consumers wouldn’t be able to type or understand the new user interface. Steve was right again – we became accustomed to this new user interface and it completely changed the whole notion of the mobile customer experience.
Some of today’s operators seem to accept another assumption: service providers have to maintain and operate their own networks. An evolution has started, though, and I wonder how far it will go. The dual demands of maintaining a network, and also providing a superior customer experience, have service providers feeling stretched thin. In fact, some of them are fighting against this feeling of being pulled in two directions by considering getting rid of their networks. They believe that they can drive a new customer experience by intensely focusing on it, rather than worrying about their networks.
The mobile virtual network operators (MVNOs) led the first phase of this process. Their lack of a network means they must provide a differentiated customer experience. This trend has taken off quickly, with some countries, such as The Netherlands, having nearly 60 active MVNOs! We continue to see various niche offerings, such as the announcement that Red Bull is launching a partnership with EB Games to focus on creating a unique experience targeting young people (their main demographic). Red Bull will resell a renamed Vodafone mobile service on Red Bull-branded (and Facebook-centric) HTC ChaCha and Salsa handsets. Vodafone will handle the network, while Red Bull provides the experience and offers its customers a unique pricing model with no contract.
TracFone is another example of a successful MVNO. It has garnered over 18.8 million subscribers in the truly competitive American market by offering a prepaid service in what was predominantly a postpaid U.S. market.
The second phase of the moving-away-from-the-network process is being fueled by the need to launch new technologies and using nation-wide infrastructure to enable broadband infrastructure as a human rights issue. For example, Yota is a partially government-owned company responsible for rolling out LTE in Russia. MegaFon, MTS, Rostelecom and VimpelCom will buy traffic from Yota and lease its LTE facilities. Russia is hoping that moves like this will establish it as a 4G leader. Similarly, NBN Co in Australia is part of a 10-year, government-backed plan to deliver fiber-based wholesale broadband services to “93 percent of Australian premises.” All the local service providers, such as Telstra, will use the infrastructure managed by NBN Co for their own services.
The last phase consists of providers who have moved their network operations to long-term managed services agreement, such as Sprint; 3UK and T-Mobile UK’s Mobile Broadband Network LTD project; and not long ago, there was a call by Cornerstone, the network-sharing joint venture established by O2 and Vodafone, for outsourcing proposals.
The common factor connecting all of these three phases is the desire to focus intensely on providing a unique customer experience. MVNOs don’t possess a network, so they must differentiate based on the experience they provide. Government initiatives level out the network situation, driving service providers to focus on customer experience-based differentiation, which puts a premium on experience. And joint ventures featuring shared networks between competing local service providers inspire the partners to stand out – again with a unique customer experience. All of the above ideas can generate excellent ROI and sustained future innovation. I expect this trend to continue and grow as the demand for network coverage and broadband accelerates, and I predict we will see many new models of how unique customer experience is leveraged to achieve a sustainable competitive edge.
Are there any service providers who will give up complete commercial control of their network and totally divest?
Such a service provider will be taking a big chance, because while device makers and over the top players such as Apple or Google can always blame the service providers for a poor customer experience, the service providers won’t have that option. Still, customer experience is clearly becoming the biggest differentiator and it’s difficult to focus on both network and the experience, so expect to see more announcements of service providers choosing one of the above options (or a new, innovative one) so they can better focus on customer experience.
*Special thanks to Eric Danis for his editorial assistance.
I truly believe in the views expressed in this blog. I see the telecom industry eventually evolving to a model seen in the electricity industry. Just like in electricity industry, power generation is segregated from the power transmission, in telecom also, customer experience will eventually separate out from network operations. However, this view should be held with caution as the market will not embrace this evolution if there are a handfull of network owners. Nobody wants a monopoly (as against a monopoly in power transmission). Great blog.
very informative. Thanks for sharing this.
I think we need to think more broadly about what constitutes a service provider. Take Akamai. They have been offering download content to customers for years from their own set of servers. Their offer is entirely dependent on leased connectivity to the Internet backbone. However this is a company that runs this like it’s won network. It monitors the global Internet for usage patterns and dynamically shifts content and customers to servers that are less loaded. And it does this in a near real-time method.
What the Service Providers are doing in the artical above is really just straight outsourcing of their bit-pipe. Rather than the IP services department asking an internal bit-pipe department for a connection of a given size to a customer, these SP will now define an SLA to a 3rd party bit-pipe provider. Rather than an inter-departmental conversation, this is an inter-company conversation.
In theory this will lead to greater innovation, as the barrier to entry for new operators (physical network) is removed. In practice, the barrier to entry is generally compelling content and that will still tend towards monopolistic operators with the purchasing clout to offer new services, or continue the trend where OTT providers are the innovators and the IP service providers (who lease the bit-pipes) still struggle to find revenue from offering broadband connection to the internet.
So what does this mean for amdocs ?
Are these Servies Providers a market amdocs wishes to compete in?
What will be the size of these Service Providers ? 60 providers in NL – meaning an average Tier 13 size with additional expenses to pay for the network usage to the partner operator? Such a provider can probably afford an off the shelf fully and easily configurable BSS package.He cannot afford the hundreds of MM customization, implementation and configuration it takes us today to put an Amdocs BSS system into production.Nor can he afford the organization to run such a system.
Another alternative is to provide BSS “as a Service”. This might be an interesting market if we can build a software which is so flexible that the Service provider can truely configure it for a low price to provide a differentiated customer experience.This also saves these micro service providers the need to run and maintain these systems and shifts additional revenue to the Outsourcing Provider.
Again here – amdocs is not close to provide a solution today.
So what is the outlook for this trend if it materializes? Two, three years from now ? If this is the case and amdocs wants to be part of this market, I hope there is someone in our M&A division who is looking for a company which has or develops such a system. Because even if we start development now, we will be late on the market.
Another question is also if this trend materializes, whether there will be a market for some of the current amdocs products. Besides mediation, Turbo Charging and the OSS products which are close to the network, what will be the fate of products such as CRM, Invoicing, AR, Collections ? APRM may become the product for the Operators – but then we should invest heavily in it and modernize it.
Bharti Airtel outsourced its network and IT to focus primarily on driving the customer experience as early as 2005. It has become the marketleader in India by doing that.
Idea is to focus on core competence and for a service provider it should be driving the customer experience rather than focusing on network and IT operations.
R Pai – i agree that Bharti is a classic example of how focus lead to a refined marketing strategy and gaining share – thanks for sharing.
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