Tuesday, December 6, 2022

The Platform Future of Telecoms

Connectivity providers as the utility companies of the digital age

For decades Telecommunication providers have been focused on becoming water suppliers. We have all drunk the water of connectivity, they have invested in the digital pipes that let communications and other data traffic flow across the world, judged by coverage, speed, and capacity. The technology which bloomed in the late 20thcentury has become a vital utility for delivering the digital world of the 21st century.

As the great waves of network expansion have progressed the higher value services that Telcos historically provided have been superseded or outcompeted. The largest data reservoirs are owned by the data center and public cloud providers. The communication flows are increasingly dominated by messaging apps in the consumer sphere, and Unified Communication &Collaboration (UCC) and Communications Platform as-a-Service (CPaaS) providers in the B2B domain. Telcos still have a role, but that role is increasingly the role of data pipe, accentuated by the need to transport .This has helped accelerate the utilitization of telecoms providers, and disconnects them from directly providing many of the services which consumers and businesses use connectivity for.

The commoditization of connectivity has left Telcos in mature markets, especially Europe, with a quandary: how do they grow value for their stakeholders? Unlike gas, basic foodstuffs, oil, connectivity is not a commodity that naturally goes through cycles of glut and scarcity. While many network operators have provided basic business connectivity and voice services, the price their customers are willing to pay for these services are stagnating or actively in decline. IDC calculates that the combined revenues of the top 10 North American and European Telecoms groups have a CAGR of only 0.7% for the last 5 years. This is a time in which they have been spending billions of dollars increasing fixed network capacities and rolling out 5G networks. In order for Telcos to continue making the business case to invest in capacity upgrades and new networks at the same rate these investments must also offer value their customers will actually pay more for.

The PaaS & CPaaS wave

Elsewhere in the world of digital infrastructure telcos have looked enviously at the fortunes of the public cloud providers AWS, Microsoft Azure and GCP, and the CPaaS providers like Twilio and Vonage. All five of these companies have been comfortably making double digit revenue growth in the last 5 years while operators have been happy with more like 1%. The success of these platform providers, both public cloud and CPaaS, has been forged by building a centralized asset, and then innovating to expose more and more capabilities which their customers will pay for.

These platforms still have to invest in their own versions of capacity and speed – AWS has partnered with Arm to design its own Graviton server chips to boost hardware infrastructure performance –but these companies have also sought to differentiate through constructing further value on the platform, which is exposed through APIs. They have then maximized the value created through building large partner communities which utilize the APIs and help to ideate new value to create. When Vonage was acquired by Telecoms vendor Ericsson, it disclosed that it had over 1 million developers registered on its platform. AWS, Microsoft Azure, and GCP each have thousands of partners in their broad ecosystems.

Telcos platform play

Telcos want in. Industry forums are awash with talk of transformation from ‘Telco to Techco’, at the heart of which is the desire to offer services like the hyperscale platform players and CPaaS providers. Rather than pushing data volumes, speed and coverage, instead they want to unlock more of the inherent capabilities and functionality of the network through offering service APIs which can then be used to build services businesses will pay for. What could these Telco APIs look like?

  • Application optimization: Telcos could expose network data and optimization functionality to support developers seeking to improve app performance across service provider infrastructure. This would be done in partnership with industry vertical specialists and even customers themselves who best know the performance they need from their applications running across Telco networks.
  • Identity verification: Telcos hold identity information on their customers and their movement patterns. Telcos could offer APIs that enable a range of new verification services, for example, a financial institution could want to verify if an individual is on the phone when they authorise a large transaction. If they are the transaction has a higher likelihood of being a fraudulent one.
  • Location data and verification: Google maps is arguably the most successful location provider to consumers and businesses in the 4G era. However, as more and more things get connected around the world, the need for additional means of tracking and verifying location multiply. These could range from delivery drones needing more accurate flight location data to avoid collisions, to logistics and transportation companies looking for back-up location providers for autonomous vehicles, and augmented reality games needing location context to be able to provide the correct reality augmentations.

These account for some of the most obvious examples of capabilities which Telcos could expose as new services in APIs. Others can be more tailored to specific businesses or regulatory environments. No-one operator can fulfil this vision on its own, hence the launch of the CAMARA Global Telco API Alliance in March 2022, which includes contributors from AT&T, Orange, Microsoft, T-Mobile, Nokia, GCP, and Telefonica among others.

Conclusion

As the network transformation represented by 5G progresses Telcos are striving to become match fit, 21st century digital infrastructure players, rather than 20th century digital utilities. At the service level this will manifest in them becoming connectivity brokers, exposing network capabilities so that customers can consume the flavour of connectivity they desire. Returning to the water supplier analogy, they are seeking to move from water pipes to drinks brokers who can go from supplying water to Coca-Cola, to Tango, to Cranberry juice with just a few API calls. The question is, will you drink?

Chris W Silberberg, Research Manager, EMEA Telco Insights, IDC

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