Software Is the Name of the (New) Game in Telco

Software is growing to be a key dimension of the industry. Network Equipment Vendors (NEPs) are increasingly supporting open interfaces, cloud platforms, and open software architectures. This shift has been in motion for some time, and it is further emphasized by Open RAN, inherently an open software approach. Ecosystem flexibility stands to be the key driver of software in telcos. Communications Service Providers (CSPs) seek to diversify their supplier base, drive new growth, and sustain the lead they have on strong cellular and low-latency connectivity.

Regardless of region, size of operator, or cost/pricing structure, open APIs, modularity, and cloud technologies are bound to be core building blocks of new value creation. Furthermore, alignment with industry initiatives (e.g., TM Forum’s Open Digital Architecture) will almost certainly be the underpinning pillars behind new, software- and cloud-centric growth in the industry.

Nokia, in its software analyst event, promulgated several pillars to bolster its path to new value creation. First is a continued product investment to extend differentiation in telcos, what Nokia regards as the heart of its business. New growth in telco is about openness and working arrangements that drive innovation and accelerate new technology adoption. To that end, Nokia is engaging in co-creation projects to establish early architecture designs and institute a credible path to continued profitability. Nokia is using its cellular expertise to embed cloud and End-to-End (E2E) automation in its product design from the outset. That experience is already paying dividends as shown by the recent win with Dish, a CSP that is leading the charge for an open ecosystem.

Further, Nokia is pursuing growth with new software products that can be configured specifically for niche enterprise engagements. What stands to increase the utility of these products, however, is Nokia’s success at plugging them into its existing distribution channels. This highlights a broader contest that NEPs must contend with. The value that stands to be created triggers a race between new smaller vendors pursuing distribution and incumbents with distribution channels pursuing “relevant” products. One way for incumbents to win a market is to buy innovative products. But Nokia is also building them. With a common software foundation, a journey that started approximately 8 years ago, Nokia is developing cloud-native products from the ground up, gradually available on cloud-like commercial models. 

Lastly, Nokia is embracing cloud delivery commercial models. Nokia, like the rest of NEPs, places strong emphasis on cloud and software for portfolio modernization, internal processes optimization, and creation of new commercial models. For example, 5G and software propel the rise of SaaS business models, a key growth area particularly for private networks. However, such new business models do not fall within NEPs’ expertise. So, a major business process change may need to take place in sales, marketing, and customer service functions. But the structural changes that reinforce new processes must occur within the products themselves. Nokia’s partnership with Google Cloud is a step in that direction, and one that reflects its commitment to software products and a cloud-first strategy.

Cloud technologies pave the way for new disruption and E2E network/service automation. Cloud enables CSPs to modernize their operations towards hyperscaler-based capabilities. That, in effect, is an opportunity for the industry to augment existing growth engines. But it must do that while engines are in motion. For example, though a greenfield operator, Jio Reliance has upended the Indian market by shedding circuit-switch technology (2G, 3G) and adopting a more cloud-like technology like 4G. Because everything is data, Jio has built its networks on commodity hardware in a way that 2G and 3G could not. Jio is leveraging disaggregation and hardware/software decoupling to invest upfront. Jio then seeks to serve a large number of consumers in order to get maximum leverage on that upfront investment.

Other examples of CSPs effectively utilizing software and cloud technologies abound. Telefónica, for instance, uses big data and AI/ML to modernize its Network Operations Centers (NOCs). Rakuten goes a step further with its decision to rename its NOC to a Service Operations Center (SOC). Singtel leverages automation capabilities and network slicing to make a foray into the B2B market. A common underlying pattern behind these examples is that they are using software to drive effective business decisions. Software allows CSPs to understand customer experience in real time and create a harmonious co-existence between existing networks and innovation. 

The rest of the CSP market, particularly those with brownfield operations, must begin to harness the power of AI/ML, big data, and analytics to enable faster and better decision making. CSPs, broadly speaking, must realize that the name of the (new) growth game in telcos is strongly associated with software. The ability to shift value creation to software to guide new growth ventures will almost certainly be a defining feature for CSPs of the future. Naturally, this change will not happen overnight, even in the most progressive of CSPs. But it is vital that, in close collaboration with vendors, the operator community plants the seeds of software platforms today to create value for their clients tomorrow.