Background: President & CEO of TM Forum (www.tmforum.org) Motorola British Telecom Current: Author Partner SEB Consulting Board advisor The Economics of NFV Martin Creaner Chapter 1 Breaking through the transformation barrier Chapter 2 Understanding the Value of Transformation in an Industry in Turmoil Chapter 3 - The 10 transformation Journeys of the Digital Telco Chapter 4 Deciding on the right destination for your digital transformation journey Chapter 5 Making practical transformation happen Chapter 6 Driving Innovation in the digital telco Chapter 7 The Digital Services Landscape Chapter 8 Platform Federation and the Cloud Chapter 9 Closing thoughts Author Transforming the Telco Digital Transformation Jan 2018 Delivering the Digital Economy Mapping the emerging digital economy Frameworx Distilled Telco Architecture NGOSS Distilled OSS/BSS industry models
Current spend Now : Incremental but not yet Transformational Scope : Incremental point solutions. Tier 1 Telco Gaining experience before wholesale deployments. Deployments in domains where it makes business sense now Roadmap from Legacy -> Virtualization-> Orchestration -> Cloud Native Scale : Mainly Tier 1 Operators driving the spend. Some holding back for cloud native & People, Process and Partner Alignment Savings : Operating Legacy and Cloud dual stack will limit savings until full cloud native deployment advantages Savings will come, mainly in Opex via Automation/Orchestration. Cap and invest Motto.. Cap legacy and invest in new tech Scope on initial deployments focus on IT/Core Domain vs Access/Backhaul» On 25% rather than 75% of current spend 75 % vcpe SD WAN 25 % Current IT/Core vepc vims 75% Current Access & Backhaul 3-5yr journey to vcore vbss voss vims vepc Openstack
Moving to Transformational Change NFV and SDN platforms and their operational implications require re-architecting the network, building new management platforms and overhauling interfaces to legacy systems and OSS/BSS A redistribution of spend towards new technologies will feature for next 5 years Telco faces a Spend now save later dilemma This spending dilemma means the reduction on total spend is several years away as due to dual stack and system integration of new tech For Top 20 Telco s Capex and Opex cumulative will remain largely flat next 5 years at circa combined $350bn A shift in value as moves to software and services, solutions consumed in an increasing SaaS/Opex model Industry expectations of 30-40% savings all in for SDN/NFV what does 2025 picture look like & when will meaningful savings be realised Top 20 Telco s $350bn 32% 6-8%% 2018 2022 $60bn 65% 7%? 2025? Vendor CAPEX Legacy SDN/NFV Vendor OPEX
Top 20 CSP CAPEX $bn 100 200 350 Redistribution of existing spend to SDN/NFV 2018 2020 2025 CSP Capex Total Of which SDN/NFV It has been been a slow start in industry for SDN/NFV investment inter operability issues, MANO flavors across ETSI /Linux groups Some CSP Holding back investment awaiting for Telco cloudnative deployments from vendors Tier 1 s are driving the Telco investment in initial stages TOTAL CAPEX forecast to remain flat for 5 years due to dual stack and system integration of new tech Costs savings story - become meaningful at an industry level in later years of transformation journey with meaningful data points and case studies demonstrating 30-40% all in savings anticipated. but still awaited CSP CAPEX (Top 20) In 2020 SDN/NFV spend breaks thru $ 350bn $100bn $200bn In 2023 SDN/NFV spend breaks thru
Pathway to Savings although not a short Journey From discrete network elements From Traditional Tech an autonomously managed, virtualized communications and cloud infrastructure Agility & Elasticity Requires dual stack skills during transformation = Traditional Opex + New skill Opex Pushes out savings until cloud native deployments to bring webscale efficiency and requires legacy decom & skills pivot Embracing SDN, NFV and cloud tech can enable improved KPI Average Revenue /Capex - Telco 16%, OTT 8% average CSP Revenue$ bn Capex$ bn Ratio AT&T 100 21 13% Vodafone 60 11 18% China T 53 14 19% DT 80 12 15% NTT 105 15 14% OTT Revenue$ bn Capex$ bn Ratio Amazon 136 7 5% Apple 218 12 6% Alphabet 90 10 11% Facebook 27 4.4 16% Alibaba 21 2 10% 2016 revenue figures
Business Value Chain Transition CSP OTT Vendor (Black Box) System (White Box) Modules Components Modules Components Classic CSP value chain Component & Module providers deliver to system vendors, which then deliver products to the network operators. System vendors design proprietary hardware and software black box making it difficult for network operators to integrate products from different vendors OTT value chain For many components in their hyper-scale datacenters designed by OTT, using an open approach and manufactured by white box suppliers, in contrast to black box products based on proprietary designs. OTT providers largely ignore major vendors in infra build out This scenario is a threat to the leading manufacturers of telecom equipment such as Ciena, Huawei, Nokia and ZTE, Ericsson however these companies also see a great opportunity in helping service providers transform the way their networks are operated and constructed. The equipment business in the future will be more software based, including open versions and consulting services rather than custom hardware.
$bn $bn Transformation View Not Only an Infrastructure focus Example Carrier: Revenue / Capex / Opex Revenue Capex OPEX 56 11 35 Care & Fin, Tech Marketing Product. More than External Vendor Opex and Capex focus required Today the internal Opex volume, 3.5 times Capex for Telco. Telco seeking a mix of suppliers but require a deep platform knowledge and open-source competency Potentially pushes vendor to open the opex structure of carrier to find opportunity Potentially pushes Telco to do more integration than before, not all Telco have SI skills for open source SDN/NFV 2025 Carrier? : Revenue / Capex / Opex Revenue Capex OPEX 50 7 24 30% savings realised Opex challenge for Carrier digitalization transformation If Telco core revenue reduces at -1% CAGR = $50bn If Telco achieve Capex & Opex reductions; 30% all in is efficient smart pipe What about new opportunities in the software defined ecosystem New revenue platforms and services? Is digital transformation about cost savings and an efficient pipe Or about digital transformation for new Business revenue AWS will grow at CAGR of 15% in the same period
Don t forget that this is only 1 of the 10 transformation journeys the Telco has to make! Multiple transformation journeys will be required for a Telco to successfully complete transformation Digital transformation impacts on all aspects of the business The customer engagement journeys require not only a new way of engaging with customers but a brand new approach to channels and how they are managed The technology journeys include infrastructure transformation to NFV/SDN, Data & Security Transformation, and the journey to open up the network & systems platform via APIs to 3 rd parties The operations journeys involve the enormous challenge of changing the culture of the organization as well as the challenge of preparing the company to adopt new business models The digital services journeys involve not only innovating and designing new exciting digital services but also learning how to manage the wider ecosystem of partners