Decoding Three Key Technological Trends in the Telecoms Industry

Subscription services have become incredibly popular over the past decade. Examples abound. Uber, the world’s largest taxi company owns no vehicles. Alibaba, one of the world’s most valuable retailers, has no inventory. Airbnb, one of the largest accommodation providers, owns no real estate. Possession is not as important as it once was. Access is more important than ever. The telecoms industry is one of the last ones to take advantage of this trend. Though very subtle, what is happening is an increased consumerization of telecoms technologies. As discussed in ABI Research’s report, Cloudification of Telecom Technologies and Equipment, the new world of cloud and software marks a departure from “technology ownership that CSPs purchase” to “technology access that CSPs subscribe to.”

With the rise of subscription services, the industry is at the beginning of a significant shift because it will warrant a revisiting of existing monetization models. On the one hand, Communication Service Providers (CSPs) are taking a rental type of approach to obtaining technology as they embrace digital processes and operations. On the other hand, technology suppliers are responding accordingly to meet that market demand. With a growing Software-as-a-Service (SaaS) portfolio; Nokia, for instance, seeks to free CSPs from the burden of costly and time-consuming product maintenance as they progress with their digital transformations. Further, by adopting a rental type of approach, CSPs have the opportunity to leave behind the traditional way of buying software. Three deep technological trends are accelerating the direction toward technology access: dematerialization, decentralization, and platform synergies. They already have had an impact on other industries, and they are now disrupting the modus operandi in the telecoms industry.

The industry is moving away from the centralized and the rigid order of hierarchy toward the fluidity of decentralization. 5G core, Open RAN, and cloud edges are all embodiments of that overarching trend. The genesis of this shift is the Internet world, a decentralized architecture by design. For the industry, the impending “flattened” landscape constitutes an opportunity to redirect investment and energy toward creating products that are easy to consume. Established business lines will need to be revisited because their existing commercial models may no longer be relevant. The following technological trends are driving that change. Only by working with these technological trends, rather than trying to thwart them, can the industry gain the best of what they have to offer.

• Dematerialization: On average, most modern products have undergone dematerialization. Since the 1970s, for example, the weight of the average automobile has decreased by 25%. Appliances also tend to weigh less per function. Huge PC monitors have shrunk to thin flat screens, while clunky phones have become pocketable. Digital technology is now accelerating dematerialization in the telecoms industry. For example, as discussed in ABI Insight “Glasgow Climate Change Conference is a Receding Memory but What Are Telecoms Doing?,” dematerialization entails converting analog and single-purpose telecoms appliances to digital, more versatile functions in the form of white boxes and cloud-native network functions. These digital, cloud-enabled functions propel the e-commercialization of telecoms technologies. That, in turn, accelerates the migration from tangible network equipment to intangible equivalents (e.g., software and services) as discussed in ABI Research’s report ‘Tis the Time for Consumption-Based Economics in Telecoms.
• Decentralization: With ongoing ecosystem disaggregation (5G Core, Open RAN), intelligence (service logic) is shifting from centrally controlled by telcos to residing in end devices (e.g., servers, handheld devices, etc.). This constitutes decentralization. It has far-reaching implications for CSPs in terms of control over the development of services. With a more distributed arrangement, customers can choose different providers or elements or can, in effect, self-provide. Furthermore, the consequence of moving from centrally controlled cellular networks to a flatter arrangement of networks is that everything—both tangible (network equipment) and intangible (software)—must flow faster to keep everything going together. The more the telecoms industry is decentralized, the more important “technology access” becomes.
• Platform Synergies: A platform is a foundation created by a company that lets other companies build products and services upon it. The wealthiest and most disruptive companies today—Apple, Microsoft, Google, and Facebook—are built on multi-sided platforms. These companies employ third-party vendors to increase the value of their platforms. They employ Application Programming Interfaces (APIs) that facilitate other vendors to build on their platforms. In telcos, dematerialization, decentralization, and massive communication will inevitably lead to more platforms. In fact, as discussed in ABI Research’s report, 5G Provides an Unlimited Window to Move from the Short Tail to the Long Tail, Ericsson is one vendor among many others that is advocating a 5G platform. What remains to be seen is who owns those platforms and how they will be monetized in a changing competitive landscape.

Dematerialization and decentralization enable new business modes, but if telcos are not ready to capitalize on this structural industry change, it may well be a costly market advancement for them. Telcos should view this development as a harbinger of the new age and as a representative of the kind of bold action needed to capitalize on cloud and software modular Internet architectures. Specifically, everything that tech suppliers (e.g., Enea Openwave, Ericsson, Huawei, Nokia, and ZTE) will “manufacture” in the future will be in the process of becoming cloudified and cognified. Change is inevitable. T his never-ending change stands to be the pivotal axis for telcos. Constant change means more than “telcos will be different.” It means processes the engines of change—will be more important than products. CSPs and vendors should aim to get the ongoing process(es) right and to keep generating ongoing benefits. In a decentralized ecosystem anchored on the cloud and 5G, processes trump products. The focus should be offering application- and industry-specific services, rather than standardized products. For example, embedded with a high dose of software, functionality from cellular antennas and/or core networks becomes a service accessed over the Internet.

The shift toward the decentralized and the platform-enabled will continue unabated. For CSPs, and for the industry, in general, dematerialization, decentralization, and massive communications anchored on 5G all lead to more platforms. Platforms are factories for services. Services favor access over ownership. Access is a more appropriate stance for the fluid relations that stand to govern the highly decentralized telco ecosystem that is emerging. But the move from technology ownership to technology access has a price. In the short- to medium-term, ABI Research expects telcos’ spending in hardware-based networking equipment to continue. But in the long term, Ericsson, Huawei, Nokia, and ZTE must plan to find new revenue sources. There are essentially two ways to achieve this. First, do more of what is being done (increase scale), but do it in a fashion that reduces costs for telcos. Second, venture into new growth areas (increasing scope) with commercial service arrangements anchored to deeper relationship between demand side and supply side as discussed in ABI Research’s report The Prospect for a Services-Led Model in Telecoms.