How Can Rakuten Mobile, Singtel, and Telstra Adjust their Operating Model to Unlock Value with a Cloud Packet Core?

5G Non-Standalone (NSA) serves consumers with enhanced mobile broadband (eMBB) capabilities. Further, for those CSPs with enterprise connectivity business, their Evolved Packet Core (EPC) investment propels sales of network services, sending/receiving Layer 2/Layer 3 payloads to/from peers. Examples include Ethernet frames, IP packets, and Multiprotocol Label Switching (MPLS) frames spanning a distributed, multi-site geographical footprint. 5G NSA provides a good start for CSPs to explore new growth by better executing MBB-type use cases in consumer domain and expanding them in new domains. The bulk of 5G deployments today operate in 5G NSA mode. However, CSPs realize that using existing EPC may not be sufficient for entirely new value-added services. By contrast, with 5G Core (5GC), the industry has an opportunity to introduce something above and beyond MBB. For example, with 5GC, CSPs offer edge services like Multi-Access Edge Computing (MEC) offloading, low-latency, and local data and compute processing.

5GC networks deployed in standalone (SA) mode are growing in adoption. Today, there are 30+ 5GC networks deployed in SA mode. Further, ABI Research estimates that 5G subscriptions will increase to 3.1 billion in 2027, at a Compound Annual Growth Rate (CAGR) of 27%. In addition, 5G traffic is forecasted to increase to 2,515 Exabytes (EB) in 2027, at a CAGR of 54%. With a continued 5G subscriber uptake and a 5G traffic growth, 4G traffic stands to move to 5GC. 5GC is expected to enable expansion in the consumer value chain. But importantly, 5G in general, and 5GC more specifically, redefines service-delivery and value-capture models. In other words, there is an operating-model disruption. CSPs’ existing operating model changes both in terms of requirements nature and the sheer requirement scope that must be managed. Enhancing the existing top-down operating model is a transition journey for CSPs like Singtel and Telstra, to name a few. In this market intelligence report, the terms 5GC and cloud packet core are used interchangeably.

With EPC, CSPs’ operating model is both universal and uniform—integration of cellular networks to provide mass market, country- or region-specific subscriber static voice and data services. CSPs’ growth profile revolves around technical excellence in cellular. Service logic resides within the network itself and is under the CSP’s control, producing positive feedback loops and outsize profits. A “build it and they will come” is the starting point. What technology that can be built is the foundation of that model (see IN-6805), a centrally governed architectural approach. In that respect, CSPs capture profits from core to (subscriber) edge. It is an operating model where technology sets the (consumer) business agenda. It is an operating model where the buying party (subscribers) are a long way away from CSPs in terms of arm’s length. There are few touchpoints with the customer, so arguably they are viewed as an abstract entity. That is an all control, all top-down operating model that starts to be tested with cloud packet core networks.

With a cloud packet core, the industry structure evolves toward decentralization. In contrast to EPC, 5GC network functions (NFs) are spatially separated from one another. A case in point is local deployments of User Plane Function (UPF). With 5GC, CSPs move into edge deployments and topologies. In other words, CSP move out of the four walls of their virtual DC or physical DC to place networks and compute as close to their customers as they can. That could be on a regional or branch office, or it could be on telephone poles and central offices. With 5GC, CSPs’ cell sites, central offices, and DCs become infrastructure hubs. The offshoot is that CSPs’ DCs grow from hundreds to potentially thousands, Virtual Machines (VMs) proliferate from hundreds to thousands, and networks increase from tens in central environments to hundreds at the “edges.” Consequently, CSPs shift from centrally hosted workloads in their DCs to a combination of central- and edge-hosted workloads in both partners’ and CSPs’ DCs.

Clearly, the core network is moving away from the ‘closed’ and inflexible order of hierarchy toward the openness and fluidity of decentralization. And that, in turn, triggers structural changes not just in how networks are designed, but also in the operating model required to commercialize them. These changes stand to be the pivotal axis for emerging competitive landscape. In this landscape there are constantly changing requirements, and there is customer- and/or service-specific connectivity. But the shift from a ‘closed’ ecosystem to an open and decentralized one will not come without challenges. In this decentralized setting vectors like commercial focus, strategies, and operating models to execute start to be tested. Consequently, a challenge Rakuten Mobile, Singtel, and Telstra, among other CSPs, must contend with is on the operating model front. But the innovation potential that comes from modernizing existing cellular practices outweighs the transient challenges CSPs will have to face.

There is a growing demand for partners that understand customer requirements. For example, in the retail industry, for Sainsbury’s, the second largest chain of supermarkets in the United Kingdom, the requirement is not on the technology per-se, but rather the business outcomes technology enables. Technology for Sainsbury’s is important as far as it enables the company to deliver on business goals. Phil Jordan, Sainsbury’s retiring CIO, recently remarked in Telecom TV’s The Great Telco Debate, an event held in London, that “enterprises are not obsessing which type of technology to use. We are interested in (any) technology supplier that can propel a whole series of business outcomes for us”. For instance, speed of check out; how quickly they can get somebody through a till; how much shopping can Sainsbury’s digitally get inside a store; and how much data can Sainsburys deliver reliably to an end point (customer in store) are business outcomes they seek. Ultimately, for Sainsburys, much like other enterprises, it comes back to what they wish to achieve as a business. In other words, Sainsburys is on the lookout to buy solutions.

Clearly, enterprises define quality within the context of a job-to-be-done. Against that backdrop, the market demands that CSPs, not just in Asia but also other markets, learn to drive value bottom-up. What customers need is the starting point. Their business outcomes set CSPs’ technology agenda. In the new emerging landscape, there will be enterprise-specific, market-specific value-based and niche engagements. CSPs should cater to customers that have different application requirements, different services and different connectivity needs depending on the evolution of own business model. That constitutes a bottom-up operating model. Consequently, to advance their growth strategy beyond MBB, Rakuten Mobile, Singtel, and Telstra, among other CSPs, should build their growth profile starting from (enterprise) edge requirements extending to core (network and/or compute). This bottom-up, value-capture approach equips these CSPs and their peers with the readiness to intimately understand unmet individual customer’s requirements and respond in a targeted fashion.

Until today, Singtel’s and Telstra’s operating model was arguably all control, all top-down. As argued in this ABI insight, from today onwards, these CSPs and their peers should complement existing top-down connectivity selling with selling solutions, as measured by a diverse pool of customer-specific business outcomes. And therein lies the challenge. To meet customers where they are, Rakuten Mobile, Singtel, and Telstra must learn how to strategize bottom-up. Learning how to operate in this hybrid top-down market and the emerging bottom-up ecosystem is a journey. In the impending decentralized cellular market, an effective operating model, and the organizational structure that underpins it, must contain both control and lack of control (see IN-6296), both centralization and decentralization, and a hybrid of bottom-up cloud packet core plus some of the ‘standard’ (3G, 4G) top-down approach.