This may be the worst economy they've ever experienced, but it is not the time for telecom service providers to stop investing in their next-generation operations support systems (OSSs), according to a panel of industry experts.
We'll start to see who will and won't succeed by what they do in this market.
Founder and Chairman
Grinding to a halt halfway through an OSS transformation that could save millions in software customization and create new revenue opportunities will weaken carriers when the double-hit of the global financial crisis paired with a global recession comes to an end, according to Dr. Hossein Eslambolchi, co-founder of Divvio and former CTO and CIO of AT&T.
The general telecom outlook, according to a panel of networking, telecom operations and financial experts speaking at the TM Forum's Management World conference this week in Orlando, Fla., is that telecom may not be as hard hit as other industries this time around. The last major recession for the telecom industry was in 2000, and that was largely of the industry's own making, said Rob Rich, managing director of TM Forum Insights Research Group. This one is not, and so far in this recession, telecom stocks have done better than others, which may indicate that telecom is more recession-proof than other more-volatile industries.
Gauge consumer behavior. In trying to read the telecom tea leaves, Zenas Hutcheson, senior managing director of network and IT venture capital firm Vesbridge Partners, argues that the downturn for telecom companies won't be as severe because their services have become an essential part of society. Consumer spending makes up 70% to 80% of the economy, and the bottom line is that consumers are spending less around the globe, Hutcheson said.
"Bling is dead in these environments and you return to the essentials." Hutcheson argues. The telecom operators that survive will focus on their core businesses and make sure their operations are highly effective. "You have to introduce new products that can bring about growth, but there is an operational excellence component here."
Even though they may be somewhat insulated from the worst of the recession, telecom carriers can't sit back and wait it out, according to TM Forum Founder and Chairman Keith Willetts. "Before flat-rate pricing, telecom revenue used to rise and fall with the gross domestic product [GDP], so the decision now is not whether to use less of a service but whether to keep it at all," he said, adding that most consumers will opt to keep services, even though some may switch to lower-cost services.
Cut operations costs. Service providers should really be looking at cutting their operations costs, which is what the TM Forum helps companies do, Willetts said. Instead of cutting back on all projects, they should be doing more and faster work on operations, going from lean operations theory to lean operations practice, he said.
"The turning point will be over the next year. Some operators will say, 'Let's cut everything, including our transformation program,' and others will think that's the dumbest thing to do, Willetts said. "We'll start to see who will and won't succeed by what they do in this market."
Seek network monetization opportunities. Even now, service providers have to strike the right balance of short-, medium- and long-term payback in terms of the projects they undertake, said Eslambolchi, who cited spending billions on an IP network when he was at AT&T before it was clear why an IP network was even necessary. "It's about the future," he said. "The last thing I would do is stop investing for the future.
"There will be a software transformation in this century that will drive applications and revenue, and if you don't transform your network now, it will be too late when we come out of the recession," Eslambolchi said. "We can't count on wireless growth to do everything."
Explore the new wholesale. As telecom carriers become more automated and migrate away from multiple legacy software systems, they're looking to drive more revenue, largely from retail services like mobile TV. "The jury is still out on whether communications companies can effectively win that business," Willetts said.
Another revenue possibility is that communications companies have massive infrastructure to deliver their services, which includes authentication, billing and customer databases. "All of that infrastructure can produce revenue if you sell it to other companies as one of your core competencies," Willetts said.
"There's a new wholesale, which is a dirty word in telecom, which is enabling services for other companies based on your infrastructure. There's a whole new business out there, but it's totally dependent on wholesale use of your infrastructure," Willetts said. He argues that the fear of opening networks to third parties has slowed progress.
Service providers are carrying significant operating cost because they won't stop saying, "This is the way we do things," and "We can't use off-the-shelf technologies," Willetts said. "They have to have standardized operations systems, strip the cost out and stop whining about it. Cutting the operations transformation budgets would be the wrong decision right now."