Telecommunications Industry Entering Era of Transformation

| Jul 8, 2008 | IP Services Infrastructure | Advisory Report

| Analyst: Joe McGarvey

Issue

After 120 years or so of a business-as-usual existence marked by only a few incidental transitions, the telecommunications industry is on the verge of a profound transformation that marks the end of one era and the start of another.

The telecommunications and Internet industries have existed in parallel since the mid to late 1990s, but the past decade or so has primarily served as the beginning of a period of overlap that typically accompanies the decline of one historical epoch and the dawning of another. Telecom operators around the world are embracing Web 2.0-oriented models of application creation and planning overhauls of existing service delivery infrastructures and network architectures, so it is all but certain that the Internet will eventually emerge as the dominant mechanism and model for global communications.

Instead of running from reality and refusing to acknowledge the inevitable, many telecommunications operators are meeting the challenge head on by migrating their service delivery and business models toward a Web-based approach to keep better pace with the requirements of subscribers for multi-screen communications and entertainment services. While the transformation of the telecommunications industry will not happen overnight, operators are focused on not only surviving but thriving in the Internet Age, largely by leveraging their natural assets and carrier-class attributes to either compete against or augment content and services that originate outside of their own networks.

The fortunes of telecommunications operators in the Internet Age are dependent on several yet-to-be-answered questions.

• Can telecommunications operators compete with Internet-based service providers, such as Google, on what essentially amounts to the Internet-based operator’s home turf?

• Will the natural attributes of a facilities-based operator, such as subscriber data, control of the last-mile infrastructure and the ability to render a single service on multiple devices and access networks, be enough to give telecommunications operators the edge over Internet-based service and content providers?

• Can telecommunications operators disrupt their normal service creation supply chain and open up their networks to third-party developers without compromising security?

Current Perspective

Change is never easy. Humans tend to cling to the familiar and habitual to stay oriented in a world of unending fluctuations. Our very DNA is hardwired for homeostasis. Of the roughly 3 million years the human species has occupied this planet, about 2,988,000 of those years saw humans sharing almost the exact same life experiences as the previous generation. Anthropologists estimate that with the exception of minor modifications, humans lived in the same surroundings, used the same tools, ate the same foods, and amused themselves in the same manner over a period of time that included about 30,000 consecutive generations. It wasn’t until the end of the Stone Age, about 12,000 years ago, that a human’s life experiences were even remotely different from those of his or her great grandparents or great grandchildren. In other words, for about 99.5% of human existence, life has been the same old, same old.

Looking over the lifespan of the typical incumbent telecommunications operator yields a similar set of dynamics. For more than 120 years, telecom companies have delivered services in essentially the same manner – a hardwired, nailed up, uninterruptable connection between two parties. Just as the Bronze Age ushered in a whirlwind of change and evolutional advancement in human history, the advent of the Internet and World Wide Web is triggering a seismic transformation of the internal machinations of the telecommunications operator, one that is accelerating almost on a daily basis. While Old World telecom has managed to survive the early years of the dawning of the Internet Age by dressing up TDM infrastructures in IP clothing and wringing just enough out of aging service delivery and back office systems to hang on for dear life, the near-to-immediate future calls for more substantial adjustments. Matt Bross, CTO of British Telecom, framed the issue at last month’s SofNet Show in London: operators must transform their networks, he suggested, into service delivery environments that are agile enough to keep up with the communications requirements of subscribers.

But just how radical does this transformation need to be? Is it something akin to the analog-to-digital transformation? Think again. Think much more dramatic. Actually, think Google. If there is a catastrophic event that could bring the curtain down on the Era of the Telecom Operator, a species-ending ice age or dust cloud-inducing asteroid, it is the sudden arrival of a new type of operator, the so-called over the top (OTT) players, who have essentially built up multi-billion dollar businesses without paying a penny for the distribution of devices or the construction of access infrastructures that connect millions of subscribers to their services. Not surprisingly, telcos, such as BT, recognize the business models of OTT players as a real and immediate competitive threat. The logical reaction to this threat, as expressed at industry forums, such as SofNet, is for telecommunications operators to radically transform their service delivery infrastructures – and their business models – into something that is much closer to the open and agile service creation and implementation model of the Web. After 120 years of delivering proprietary services that are embedded into transport systems, telecom operators must embrace the fact that the Web is now the platform and that they must open up their networks to allow bits of their infrastructures to be embedded into new applications and services. It is, in short, the service delivery world of telecommunications operators turned on its head.

The Internet Protocol is obviously the starting point. But there is much more to this transformation than simply moving all existing services and systems to IP transport, a process that started in the core of the network and has been ongoing – moving toward the edges over the past couple of years – for close to a decade. For operators to earnestly compete with the OTT players, the transformation needs to go beyond a simple content container replacement. This transformation, to be effective, requires a near-complete overhaul of hardware platforms, service delivery and OSS/BSS architectures and current relationships with developers and content providers. Accordingly, the three most influential competitive mileposts to look for over the next several years will be the migration to generic hardware/software platforms, the smooth and timely implementation of horizontal service delivery architectures and the opening up of traditional telecom networks for rapid service introduction and decommissioning.

Generic Platforms:

Whether it’s a combination of ATCA and Linux or some other flavor of open operating systems and server platforms, service providers are looking to build out infrastructures that resemble in many respects Internet datacenters – racks and racks of interchangeable servers or server blades. Nearly all equipment vendors are supporting this trend by porting their software to Linux and moving functionality to ATCA.

Horizontal Service Delivery Architectures:

The IP Multimedia Subsystem (IMS) and Service Delivery Platform (SDP) are interrelated frameworks with similar objectives, the most prevalent being to create distinct separation between the various network layers – transport, session control, services and application. By isolating the layers of their networks, operators will be able to leverage the most important attributes of IT and Internet environments: reusability. Above all, operators are looking to significantly reduce the specialization that is now required to create and implement a service. Building a service once and using its components over and over is the key to competing with the Googles of the world, which can create and decommission a service in a matter of days.

Open Networks

With a streamlined network where session control and telecommunications functionality is separated from the underlying transport, operators will be able to expose features and functions in their networks for easy insertion into third-party applications and services. This is the predominant motivation for the Web services/Web 2.0 movement. By exposing telecommunications functionality, such as session control, to a universe of third-party developers, while at the same time shielding them from underlying complexity, operators hope to create a consistent pipeline for unique, compelling and rapidly developed services.

It might sound odd at this junction in their history, but the most important issue now facing telecommunications operators is figuring out the role they will play as they transition into the Internet Age. There are three major options. They can take on the OTT players head to head, matching them service for service. They can go the opposite route, as well, settling into their traditional role of transport provider – AKA dumb pipe. Option number three is a hybrid of the first two options, where operators deliver transport and a few original services but primarily perform the role of facilitator, adding value-added treatment to the content that originates outside of their networks. Key to pulling off this last scenario is leveraging the assets – some would say baggage – that separates them from the OTT players. Operators must exploit their relationships with subscribers, the ability to control the flow of content across the last mile, as well as the ability to provide the mobility management required to ensure that a service looks and behaves the same regardless of the access network (fixed or wireless) or device (mobile phone, PC or television) that a subscriber is using at a given time. (See “SofNet 2008: Telecommunication Transformation,” May 12, 2008 for more information on the way service providers can leverage network assets to defend against OTT players.) No one is suggesting that operators block or degrade services coming from outside their networks. It makes perfect sense, however, for operators to leverage their natural and incredibly expensive assets and capabilities to realign the current parasite-to-host relationship that now exists between OTT players and facilities-based operators.

On at least one level, the most important aspect of dealing with change is recognizing the need for it. Operators are demonstrating good form in acknowledging that the habits and operating models of previous decades of existence will not sustain the species in future decades. Current Analysis, as well, has recognized the evolving landscape of the telecommunication infrastructure space, adjusting its coverage over the past few years to focus on equipment at the transport (media gateways) signaling and control (softswitches, session border controllers), application (SIP application servers and Subscriber Data Management) and services (IMS and SDP) layers of the network. As our coverage of telecommunications service delivery infrastructure has evolved, we feel it appropriate to change the name of the coverage module to reflect this transition. Accordingly, the name of the Carrier IP Telephony module has been changed, effective immediately, to IP Services Infrastructure.

Despite the fact that telecommunications operators have spent about 99% of their history delivering services in a consistent fashion, it’s never too late to change. If humans were able to handle a sudden and dramatic disruption to their familiar and repetitive pattern of existence, telecommunications operators have a pretty good chance of surviving – and eventually thriving in – the Internet Age.

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