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August 2011 CSP Transformation For the Connected Economy OSS/BSS Global Competitive Strategies Volume 12, Number 8

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Page 1: Frost & Sullivan -- CSP Transformation

August 2011

CSP Transformation For the Connected Economy

OSS/BSS Global Competitive Strategies Volume 12, Number 8

Page 2: Frost & Sullivan -- CSP Transformation

OSSCS 12-08, August 2011 © Stratecast (A Division of FROST & SULLIVAN), 2011 Page 2

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CSP Transformation for the Connected Economy

Table of Contents

Executive Summary ............................................................................................ 5 

Introduction ........................................................................................................ 6 

Three Reasons to Call This Transformation ...................................................... 8 Reason #1 – All traffic is data. ....................................................................................................8 Reason #2 – The quality of devices, applications and support are the only metrics that matter. ........................................................................................................................................ 10 Reason #3 – The status quo is unsustainable ......................................................................... 11 

Transformation Starts at the Top ....................................................................... 13 What Are the Biggest Business Challenges to Achieving Transformation ............................ 15 

OSS/BSS is the Gateway to CSP Transformation ............................................. 17 

Making the Change ............................................................................................ 18 

The Last Word ................................................................................................... 21 

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CSP Transformation for the Connected Economy

List of Figures

Figure 1: CSP Business Models ................................................................................................. 7 

Figure 2: Customer Lifecycle .................................................................................................. 10 

Figure 3: CSP Revenue versus Operational Expense ............................................................. 12 

Figure 4: CSP Demographics – Type and Region .................................................................. 14 

Figure 5: CSP Demographics – Customers and Revenue....................................................... 14 

Figure 6: CSPs Recognize the Need for Transformation ....................................................... 15 

Figure 7: CSP Technical Challenges ....................................................................................... 17 

Figure 8: CSP Lifecycle Architecture ...................................................................................... 19 

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CSP Transformation for the Connected Economy

Executive Summary

Communications has evolved from convenience to necessity, and productivity enhancement to critical infrastructure. For customers, there is no longer fixed or wireless; voice, data or video—only devices and applications. Televisions, handsets, PCs, tablets or phones are devices; and voice, text, e-mail, games, movies and cloud services are applications. Both business and consumer users expect the applications they want to use to work on whatever device they choose. Connectivity is becoming as critical to users as electricity and transportation. The conundrum for communication service providers (CSPs) of any type—fixed, mobile, cable—is that classifying communications as critical infrastructure points directly toward a regulated utility business model. In some countries, including Singapore, Iran and Australia, network infrastructure is being nationalized like power, water and other regulated utilities. Although less extreme than nationalization, a number of CSPs are achieving the same effect by functionally, and even structurally, separating regulated infrastructure and operations from the product business that supports enterprises and consumers.

In an industry that appears to move at a glacial pace, change is coming rapidly. As CSPs deploy IP access networks they are realizing that all traffic is data, all products are applications and every user is unique. That is a fundamental change to the identity of a network operator. Network infrastructure has always been deployed based on customer demand and as the volume and variety of infrastructure increases, the factors driving CSPs to invest in infrastructure have not changed. What has changed is the need for CSPs to differentiate themselves based on the quality of the multitude of products and services being delivered, while, at the same time, becoming competitive retailers that are relentless about customer satisfaction. At a time when customers, not CSPs, are dictating when, where and what products are delivered, CSPs are recognizing that the kind of fundamental transformation that is underway in the network must be embraced by every aspect of the business. The next instantiation of the communications industry requires the transformation of network operators into connected solution providers.

The business and cultural transformation that must occur in CSP businesses revolves around customers and products. When delivering the network delivered the product, managing the network ensured quality. As long as customers got an accurate bill, all was well. The industry is long past those times and CSP business models, not just operations, must undergo a transformation unlike any that we’ve ever witnessed. That means taking 100 years of experience, harvesting the important lessons and moving forward with new business and operating models. The alternative is the utility model, and while that may work for some CSPs, most would not survive.

This report will discuss the factors that are dictating the need for transformation of CSP business and operating models, efforts that are underway to effect transformation, and the role of OSS/BSS in enabling these unprecedented changes. Results from a Stratecast survey of more than 100 CSP executives will be included throughout the report as well as insight gained from one-on-one interviews with numerous industry executives.

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Introduction1

Mobile CSPs were going to be different. Unencumbered by legacy networks, systems and business models, they were going to rapidly deliver new and innovative products, better serve their customers and do it profitably. Mobile CSPs wouldn’t have to obsess about 99.999% reliability—it’s mobile and customers would tolerate the occasional dropped call or failed cell site handoff. Customers could choose pre-paid or post-paid billing and pre-encoded SIM cards meant that service could be turned on before the customer left the store. But Blackberry, Nokia and Apple changed all that. Mobile customers now demand e-mail, maps, applications, video and control. Demand for data changes everything, and mobile CSPs find themselves faced with the same challenges as fixed network operators.

Except for the radio access network, mobile networks are wired. Traffic from the cell site to the switch site to the applications server is carried over a fixed network. As mobile CSPs rapidly built cell sites and added users, they competed on price and coverage. Although mobile access is new, mobile CSPs are finding that the rest of their business remains the same as fixed network operators. As mobile penetration reaches and even exceeds 100% and global coverage becomes ubiquitous, all CSPs, regardless of access network, will compete on product selection and quality. The quality of the product, support, devices, applications, activation, billing, changes, website and every other aspect of a user’s experience will contribute to their decision to stay with a provider or churn. Transformation for CSPs is about the customer. Which customers will be served? What products will be offered? How will customers be served? How will customers be supported? Although CSPs have been maligned for years about customer support and regularly claim to improve customer focus and experience, for the first time in 100 years, real change is accompanying those words.

Increased competition and the challenging economics of delivering and supporting the explosion of data traffic are forcing CSPs everywhere to consider their fundamental business models. There are no templates for what the CSP of the future should look like, but the vast majority of CSPs are certain they need to change. In a Stratecast survey of more than 100 CSP executives worldwide, 91% believe that their “business must be fundamentally or substantially transformed to remain competitive in the future.” Three dominant business models are emerging, as shown in Figure 1 below, and CSPs are deciding whether to adopt one or more of these strategies.

• Retailer – In the connected economy, retailers sell products that include connectivity. Whether that application is voice calling, TV programming, e-mail, text messaging, movie downloads, pay-per-view, e-books, supply chain management, home health monitoring or a host of other connected applications—customers will be buying devices and applications, while ubiquitous, converged connectivity will be assumed. Given this definition, nearly any business could potentially become a communications retailer. Amazon includes connectivity with the Kindle; home security companies include connectivity with remote monitoring services, and more. Existing CSPs will require open, readily integrated OSS/BSS, partnerships, and sophisticated settlement and supply chain agreements to become retailers.

1 Please note that the insights and opinions expressed in this assessment are those of Stratecast and have been developed through the Stratecast research and analysis process. These expressed insights and opinions do not necessarily reflect the views of the company executives interviewed.

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Figure 1: CSP Business Models

Source: Stratecast

• Enabler – Many CSPs are in the process of becoming enablers. CSP professional services groups are defining ways to help business customers in numerous industries define and implement connected applications. In addition to CSPs, enablers can be system integrators or managed services providers that bring together infrastructure, connectivity and applications to deliver a product for business customers to use or resell. Enablers that are also suppliers are often better able to help design in connectivity and deliver bandwidth, hosting, storage and other necessary infrastructure, in addition to integration and operations. A number of Tier 2 CSPs are recognizing that they do not have the resources to fully implement a retail model, and will build their business as enablers.

• Supplier – Suppliers are network operators. They sell bandwidth and infrastructure resources which could include hosting, storage, installation, operations and maintenance. Suppliers are regulated in most countries; and, in some, the government is deploying a national broadband network and will be acting as the supplier of connectivity for every enabler and retailer. Suppliers are geographically restricted to locations where they have been awarded spectrum and/or right-of-way for construction of network infrastructure. There are currently wholesale CSPs that sell bandwidth along specific routes (typically undersea or dark fiber); and, in the connected economy, suppliers will form partnerships to build and operate infrastructure from the core of the network to customer access.

CSPs are choosing one or more of these models. The largest Tier 1 CSPs are currently choosing to be all three, while many Tier 2 CSPs that own network infrastructure are choosing to be suppliers and enablers. Amazon is an example of a retailer that is also acting as an enabler for its small business partners. There are opportunities and obstacles associated with each model or combination, but the choice of business model(s) must be intentional. The customers, processes, systems and people required to succeed in each space are unique and CSPs cannot expect to rapidly switch from one model to another.

At the intersection of these business models is the Global Alliance. Because CSPs that own networks are regulated by the countries where they operate, they are prohibited from being a global

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supplier. In order to meet demand for global products to support business and retail customers, CSPs must establish alliances that enable them to deliver seamless global connectivity. Much like the airlines have created global alliances to deliver passengers wherever they want to go, CSPs are establishing alliances to deliver data wherever it needs to go.

Transformation is an expensive, painful and time-consuming effort that ultimately results in a new business culture. Cultural change takes time and constant reinforcement of consistent messages. The necessary changes will not happen overnight, but CSP transformation is happening.

Three Reasons to Call This Transformation

There is a distinction to be made between modernization which is necessary for any business to keep current, improve its products, grow its brand and grow its revenue—and transformation which is a once-in-a-generation fundamental change to the identity of the business. Like most successful businesses, CSPs have done an excellent job of sustaining their market, responding to customer demands and delivering value. They invest heavily in R&D, brand management and retaining leadership in the market. CSPs traditionally avoid disruptive technology until it is proven to threaten their market position, as was the case with data, video and mobile. In response, CSPs modernized, bought and built their way into markets they wanted to enter. Yet, they have endured without a significant business transformation. Why now? Fundamental changes in infrastructure, competition and costs are catalysts for CSP transformation, but no change is more significant than the ways that customers are changing. The number of products that customers are demanding, the complexity of delivering and supporting each, combined with the need to ensure the quality of what is delivered, ease-of-use and support, makes business-as-usual for CSPs impossible.

Reason #1 – All traffic is data. “Organizations who had network as a strategic advantage have to change. Network sharing has wiped out this advantage. Transforming the organization to change from selling voice services to data service providers is what is needed.” – Indian CSP

The most efficient way to deliver data is with an IP network, and that is fundamentally different than the existing public network. As we become a gigabit society, bandwidth suppliers must deliver large amounts of capacity on-demand using infrastructure that is as readily available and reliable as networks built in the past and maintained at 99.999% availability. Machine-to-machine (M2M) applications being developed in numerous industries require critical quality characteristics of scalability, reliability, availability and more. The transformation occurring in the network has been underway for 50 years. TCP/IP and, ultimately, Ethernet led to local area networks (LANs) in the 1980’s and the internet in the 1990s. IP is not an upgrade, it is a unique communications protocol based on characteristics that make it architecturally different than the public voice network. CSPs incorporated numerous schemes to transport data across existing voice networks, upgraded those networks to digital technology, but were reluctant, until recently, to transition to a true all-IP infrastructure.

In the years since IP has become mainstream, transformation from voice network infrastructure, based on the analog properties of sound, to IP infrastructure based on the digital properties of data, has been slow. The core of the network is almost completely IP-enabled, while many CSP collector networks are still being converted to IP. The bigger challenge lies in transforming the access network. The number of devices and connections that need to be deployed to make the access

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network all-IP dwarf the number of devices and connections converted over the past 20 years. So, the transition to IP continues and will continue for at least the next 10 years, but there are a number of indicators that the pace of IP deployment is accelerating.

• Data demand – Roughly 250 million smartphones were delivered in 2010, and demand is expected to drive continued growth of 20% or more per year through 2015.2 Even more compelling is the fact that those figures do not include notebooks, tablets or other connected devices expected to number in the billions over the next 15 years. Advanced services are creating an unprecedented burden on CSPs; and increasingly complex device configurations, demand for mobile data, and the availability of hundreds of new applications are forcing IP network expansion.

• LTE deployment – LTE is an IP data network. It is different than both of the primary wireless access technologies currently in use—GSM and CDMA—and is specified to be backward compatible with both, as well as WiFi and WiMax. This next evolution of wireless access technology takes the public network one step closer to its goal of being all-IP; and, although much work and investment remains, deployments are accelerating. Issues including handoffs from LTE to existing 2/3G networks will be challenging, and CSPs must be careful not to compromise quality.3

• Cost – The price/performance ratio of components and equipment continues to improve, thereby decreasing the cost per gigabit of capacity. As costs continue to drop, intelligent devices become affordable and connectivity for connected devices and accelerating deployment of M2M becomes cost effective, further increasing demand for IP access networks.

• Quality – The public network was of such high quality that customers took it for granted, and over-the-top (OTT) providers including Google, Apple and Amazon assumed that network quality would be maintained at typically high levels. A glut of bandwidth was reported as recently as five years ago, and as OTT providers rolled out new products, each assumed unlimited capacity. However, current conditions are much different. Every bit of capacity being created is being used and CSPs have no estimate as to where the ceiling might be, so OTT providers are approaching CSPs to help manage demand, ensure quality and share revenue.

There are factors that could conspire to derail demand and slow the progress of IP deployment. Successful deployment of IP and profitability for CSPs requires:

• Open interfaces for rapid network, IT and OSS/BSS integration • Fair pricing and demand management to monetize capacity • Security, as user information is shared globally and the number of mobile financial and

business transactions explodes • Regulations that encourage network sharing, spectrum availability and global alliances

2 Frost & Sullivan reports on the global smartphone market in multiple reports including, N81F-65: North American Smartphones Market, November 2010. For more information about this or any Stratecast or Frost & Sullivan report, contact your Account Executive or email [email protected]. 3 Stratecast reports on LTE deployments and challenges in multiple reports including, SPIE 2011 #12: “Deploying LTE – Construction is the Easy Part,” March 2011.

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As infrastructure becomes all-IP from the core of the network to the user, operations change. For the foreseeable future, CSPs must continue operating multiple distinct network infrastructures and orchestrate multiple OSS/BSS solutions and data, while maintaining transparency for their customers. Transformation efforts underway require vendors to offer common devices, IT infrastructure and OSS/BSS that accommodate technical variations to converge installed and emerging architectures.

Reason #2 – The quality of devices, applications and support are the only metrics that matter. “This is a difficult process and we need to transform in order to ensure customer satisfaction.” – European CSP

Transformation means that CSPs will compete based on products and quality, not connectivity. Customers care about performance, availability and reliability—quality. When the network was the product, managing network quality satisfied the customer. Now, connectivity is only part of the product, so, in addition to the network, connected products require that CSPs monitor and manage infinitely more touch points to please the customer. As shown in Figure 2, from the introduction of a product through usage of that product, buyers expect quality at every point in the customer lifecycle.

Figure 2: Customer Lifecycle

Source: Stratecast

The availability, reliability and quality of devices, applications and support will drive customer decisions. CSPs will not be able to compete on network speed or coverage as demand and regulators conspire to deliver ubiquitous access and capacity for all. That means that CSPs no longer own the customer because customer connections will no longer be distinct or unique. Customers will be driven to buy based on device and application choice rather than network loyalty, and driven away

“Tell me exactly what

is available.”

Offer

“Let me choose what I want.”

Order

Activation

“Turn it on ‐Now.”

Support

“Make it work.”“Make changes.”

“Fix it.”

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by inadequate offerings, inflexible product and pricing plans, inaccurate activation, poor performance and incompetent support. Ensuring a positive customer experience entails more than collecting metrics. Managing the customer experience requires that CSPs actually implement high quality, customer-focused processes and systems.

As CSPs position themselves to compete with OTT providers, device vendors and software companies, transformation increasingly means divesting the product business from the regulated infrastructure business. AT&T has established a separate business unit to implement an ecosystem for delivering M2M products to multiple industries.4 The ecosystem includes chip manufacturers, device manufacturers, network, storage, cloud services, cloud-based application development, consulting and support. Numerous CSPs, including AT&T, Verizon, British Telecom, Vodafone, France Telecom, Telstra and others, have established professional services groups that operate independently of the infrastructure business.

With soaring demand and capacity at a premium, charging schemes are changing. As Google discusses options with France Telecom for identifying high volume users, charging them accordingly and sharing the revenue, other CSPs are getting bogged down by regulators and claims of network neutrality violations. Usage-based billing is not new; however, conflicts of interest arise when the CSP delivering the bandwidth has products (e.g. on-demand movies) that compete with the OTT provider. Efforts to defuse these arguments and push the industry forward are resulting in re-nationalization of network infrastructure and operations in Singapore and Australia, structural separation in Europe, and functional separation in the Americas.

Separating from expensive, regulated network construction and operations enables CSPs to compete with the OTT providers around products, rather than bandwidth, coverage or speed. The result is that companies with trusted brands can design, sell and bill for connected products, professional services, secure transaction processing and content, while remaining competitive with companies that are not encumbered by expensive network infrastructure. Separation of regulated network infrastructure encourages IP deployment because the amount of capacity deployed will be based on demand rather than competition, and suppliers will be rewarded equally.

Reason #3 – The status quo is unsustainable “Expanding expectations and rapid delivery, all while maintaining a long term competitive cost structure in a perceived commodity industry, requires transformation. Growing threats from traditional, non-related industries present long term challenges.” – North American CSP

The key is cost. CSP costs are skyrocketing. As they struggle to build more and more capacity to support mobile data applications, cloud computing and video, support costs continue to rise and profitability plummets. The technological advances of the past several years have allowed CSPs to evolve from traditional suppliers of separate, network-dependent services into carriers delivering converged services on top of converged networks. That convergence, while creating transport efficiencies and enabling the launch of a plethora of new products, comes with significant challenges.

The cost of support calls, training, maintenance and operations is rising rapidly and for many CSPs, quickly outpacing any revenue gains. Figure 3 below shows a sampling of mobile CSP service revenue percentage increase/decrease versus percentage increase/decrease in operational expense over that same time period. 4 OSSCS 12-02, Moving M2M Strategies from Hype to Reality – Are You Ready for This? March 2011.

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CSP figures were examined for the most recent reporting period and include both Tier 1 and Tier 2 North American, European, Asian and Pacific operators. The latest version of these figures indicate that the number of CSPs with increases in operational expenses that exceed revenue gains is now half of the sample, compared to one third in early 2010.

Figure 3: CSP Revenue versus Operational Expense

Source: Stratecast

Clearly, there are some CSPs that have revenue increases that outpace OpEx increases, but the number continues to decline. While OpEx includes a number of costs outside of customer support, when considering just the cost of services combined with sales, general and administrative costs— which includes customer support, salaries, and administrative support for customer service representatives—it is clear that many CSPs are seeing increases in service revenues being devoured by the costs of service, sales and support.

As connectivity becomes ubiquitous and convergent, CSPs will not be selling communication products but rather products will be sold that include connectivity. That evolution translates into both business opportunities and operational nightmares. The qualities that CSPs have built into the network—scalability, reliability, availability, performance and quality—must now be built into the IT infrastructure, applications, customer portals, care centers, retail outlets and devices that are the foundation for a connected economy. CSPs can no longer go it alone. Management and support of connected products across a variety of industries requires unique skills and would be prohibitively expensive using current CSP support models.

Even the largest Tier 1 CSPs are recognizing the need for partner ecosystems and a variety of business models. Automobile manufacturers initially owned everything in their supply chain—from steel mills to upholstery factories and rubber plantations. When the complexity of containing all of

‐10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

1 2 3 4 5 6 7 8 9 10 11 12

% Increase or Decrease

Communication Service Providers (CSPs)

Revenue

Opex

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those diverse entities became too much, the businesses were spun off and automobile companies could focus on vehicles while steel mills could expand their product lines and sell to multiple buyers.

Ultimately, the complexity and overhead associated with owning the network, building the products and supporting customers will become too much. As separate entities, suppliers, enablers and retailers can each expand and become stronger businesses. There will still be large CSPs, but they will either functionally separate their business units (as AT&T did with its Advanced Enterprise Mobility Solutions group) or structurally separate their business to focus on products (as T-Mobile, 3UK and Orange UK did when creating the MBNL network-sharing joint venture).

Transformation Starts at the Top

“Strong support from each and every executive, manager and board member is required to make transformation real.” - Asian CSP

When the economy is booming and revenues abound, leadership is less critical to the perceived success of a business. When faced with a perfect storm of large OTT competitors, exploding demand and a challenging economy—leadership becomes essential. CSP boards are looking for leadership. Some believe they already have it while others are bringing in new blood from CSP start-ups that have been acquired, other industries and even retail. Although each CSP will find its own way through the transformation minefield, there are long term foundational efforts that must originate in the executive suite:

• Investment and Planning – The clearest indicator of commitment to transformation is the allocation of budget and definition of a strategic plan for change to every part of the business. As executives develop strategies and set investment priorities, it is critical to communicate that change is coming and that everyone is obligated to make it happen. Process optimization and modernization that has occurred at the tactical level is valuable but the culture will not change until efforts are underway to achieve foundational change.

• Teaching the Message – Every individual, regardless of level or function, must be brought along. Communicating the intent, the plan, successes, failures and progress is critical to changing the culture. Training that reinforces key strategies and intent is important, as is “practicing what you preach”. Any product or service innovation that is offered to customers should be used internally. If, for example, a CSP is selling storage options that save energy and space, IT should be using those same storage options. If a multi-tenant network monitoring platform is implemented for resale to enterprise customers, CSP internal network operations should be one of the tenants.

• Relentless Execution – Leadership has a tendency to lose focus once a major effort is underway and projects are being executed. However that is when executives need to remain engaged. The CEO of a large North American CSP conducts monthly reviews of projects to ensure that each stays on track and deliver the intended customer and business benefits. More CSPs than ever are implementing Program Management Offices (PMOs) to ensure alignment between projects, capture lessons learned and share knowledge.

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Stratecast surveyed executives at more than 100 CSPs worldwide including mobile, cable, fixed and convergent operators. The survey demographics are shown in Figures 4 and 5.

Figure 4: CSP Demographics – Type and Region

Source: Stratecast

Some of the CSPs surveyed were small and others were the largest in the world, but there were consistent majorities around what must be done, the business challenges associated with accomplishing transformation and how OSS/BSS will play a role.

Figure 5: CSP Demographics – Customers and Revenue

Source: Stratecast

Figure 6 below, shows that the need for transformation is almost universally recognized among CSPs that own or operate infrastructure. These operators do not wish to become bit pipe plumbers but embrace the opportunity to sell advanced products and services to enterprise and consumer customers.

0 20 40 60 80 100

Fixed Operator

Mobile Operator

Cable Operator

Satellite Operator

Type of CSP n=138

Americas

Europe and/or Russia

Middle East and/or Africa

Asia/Pacific

0 10 20 30 40 50

42

37

27

32

Primary Region of Operation n=138

0 10 20 30 40 50 60

Fewer than 5 million

5 million to 25 million

More than 25 million to 50 …

More than 50 million to 100 …

More than 100 million to 150 …

More than 150 million

Customers Served  n=138

0 10 20 30 40 50 60 70

Less than $100 million

$100 million to $1 billion

Greater than $1 billion to $25 billion

Greater than $25 billion to $50 billion

Greater than $50 billion to $100 billion

Greater than $100 billion

Annual Communication Services Revenue  n=138

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Figure 6: CSPs Recognize the Need for Transformation

Source: Stratecast

While transformation seems necessary for most CSPs, there are some that embrace the utility model and, for regulatory, economic or cultural reasons, will continue to operate that way. For those that see transformation as inevitable, many of the CSP executives surveyed recognize the business challenges of implementing transformation. What remains to be solved is how to overcome those obstacles.

“The rate of global competitive product/services offerings far outpaces the product development and technical skill sets required to keep up and challenge the competition.” – Asian CSP

What Are the Biggest Business Challenges to Achieving Transformation

Many CSPs recognize that the current operational mindset is closer to that of a utility than a retailer. Their business is not built to compete but rather to deliver ubiquity, consistency and quality. Every customer gets the same service the same way, and quality is universally high, regardless of cost. Changing that culture to one of tiered quality, service level agreements, product variety and “the customer is always right” support in a hyper-competitive marketplace is a lot to overcome.

CSP executives understand that organizational or structural changes will be challenging and painful, but in the end, employees will adjust. Business leaders must clearly communicate that the coming transformation affects every single part of the business and every person working there. Continuous communication of the changes that are underway, reasons for the changes and expected results will make the changes less disruptive and engender cooperation. Communication of expectations combined with relentless execution of clearly defined plans and unwavering commitment are required to accomplish fundamental business transformation.

Yes    91%

No9%

Do you believe that your business must be fundamentally or substantially transformed to 

remain competitive in the future?

Not A Challenge 

7%

Slight Challenge

36%Significant Challenge

57%

Culture/Mindset

Not a challenge

7%

Slight Challenge

51%

Significant Challenge

42%

Organizational/Structural Changes

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As layoffs continue in communications companies—Cisco (11,500), Research in Motion (2000), Telfonica (6500)—CSPs struggle with how best to deploy, deliver and support new products while operating and maintaining legacy products. The skill sets required to operate and maintain existing products and infrastructure are entirely different than what is required for the connected economy. Automation will help with routine and redundant tasks, while outsourcing manages costs of operating and maintaining legacy products. However, demand for the highly skilled engineering, IT, operations and support personnel required to deliver transformation remains unsatisfied and is cited as a risk for CSP executives.

Process changes are especially risky for CSPs since many have not focused on process in the past and are unprepared to engage in the type of overarching analysis and mapping required to define an entirely new process. Existing functions are so embedded in the culture and operations of CSP businesses that it becomes very difficult to step out of the tactical world and suddenly become strategic. However, CSPs know that systems implement processes and if they get the processes wrong nothing will change.

Cost is always a factor, and the cost of transformation must compete with daily operations and maintenance for budget. Willingness to invest in transformation and ensure that each capital expenditure contributes to the transformation strategy is critical for demonstrating commitment and ensuring success. Executive oversight is required to maintain the vision of transformation and reinforce the desired corporate culture.

CSPs that own network infrastructure will continue to be subject to regulations in the regions where they operate. Meeting the burden of regulatory demands is expensive and takes resources away from product and customer management. OTT competitors face no such restrictions or expense. As regulators continue to enforce competition at the network level, they are inadvertently inhibiting CSPs from competing at the product level.

CSPs face numerous, difficult challenges as they transform their businesses. Changing the culture and changing business processes, while managing costs and complying with regulators, creates a formidable task for these companies. Profitability remains a priority and the investment in transformation must show positive returns in a hurry. The cost of network construction, operation

Not A Challenge

11%

Slight Challenge

53%

Significant Challenge

36%

Staffing/Skill Level

Not A Challenge

7%

Slight Challenge

43%

Significant Challenge

50%

Process Changes

Not A Challenge

12%

Slight Challenge

35%

Significant Challenge

53%

Cost

Not A Challenge

11%

Slight Challenge

41%

Significant Challenge

48%

Regulatory

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and regulation is a costly redundancy that is limiting competitiveness. As a result, infrastructure is being separated from product development and sales. Numerous surveys, including this one, indicate that customer experience, while important, is a less critical driver for transformation than generating revenues, responding to competition and improving profitability.

There is some consolation in the fact that the entire industry is facing transformation, so there will be opportunities to share lessons learned, best practices and strategies along the way.

“In any and every business no one is sure what business model is going to work. So, the biggest challenge is whether the business model that the company is defining is going to be beneficial in the future.” – European CSP

OSS/BSS is the Gateway to CSP Transformation

The type of fundamental transformation that CSPs describe requires business, process and functional transformation. Infrastructure transformation is well underway and most challenges associated with implementing all-IP infrastructure are understood and being addressed. Business transformation is getting underway, and as CSPs decide where they fit in the new connected economy, there are dramatic strategic and operational changes taking place. Making the right strategic changes to processes, IT and OSS/BSS is critical for CSPs wanting to differentiate themselves from a utility. While many CSPs prefer off-the-shelf OSS/BSS or even hosted solutions, each has flexibility around the processes that implement those solutions and the way that customer knowledge is utilized. CSP differentiation will be the result of innovative processes and strategies for product and customer management. Defining, delivering and supporting unique products in a way that profitably satisfies customers are keys to revenue generation and cost control. Figure 7 shows how CSPs responded when asked about specific technical challenges.

Figure 7: CSP Technical Challenges

Source: Stratecast

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Product/service definition and management

Product/service delivery

Product/service assurance

Customer care

Sales and marketing

Billing and revenue assurance

Partner/ecosystem development, management

Systems selection and implementation

Network infrastructure delivery 

Skilled/qualified vendors and support

What are the biggest technical challenges to achieving transformation?

Significant Challenge Slight Challenge Not a Challenge

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The CSPs surveyed indicated that each technical challenge is valid and must be addressed. Interestingly, no function is perceived as being significantly more challenging than others. Follow-up interviews revealed a number of reasons for this consistency:

• Transformation will be delivered in pieces – CSPs that are defining transformation strategies are treating all functional areas the same until new processes can be defined and required changes understood. Once a strategy is in place, CSPs will approach transformation incrementally and it is likely that OSS/BSS procurements to support transformation will necessitate integration of some existing systems and data.

• Everybody has access to the same technology – As cited earlier, the primary challenges associated with transformation are not technical. Changing an industry that has operated successfully for more than 100 years takes executive-level commitment, careful planning, relentless execution, resources and time.

• Modernization only goes so far – While specific OSS/BSS upgrades may lead to cost savings, business and process changes will create the kind of differentiation required from transformation efforts.

• Prioritization of OSS/BSS projects will be based on business needs – Although some functions (e.g. Customer Care) pose more of a challenge than others, spending priority will be given to those projects that best advance transformation while meeting business and customer goals.

• Standards matter – Some OSS/BSS efforts will be delayed while CSPs identify industry and corporate standards for IT and OSS/BSS solutions. Best-of-breed deployments are giving way to best-of-platform solutions that enable CSPs to specify infrastructure, system and integration standards to ensure consistency and interoperability, both now and in the future.

Customer Care remains a constant concern for CSPs, as does the establishment of partnerships and ecosystems required to deliver connected products and managed services. Nearly half of the CSPs surveyed registered significant concern regarding the selection and implementation of OSS/BSS. The risk of “getting it wrong” weighs heavily on these executives. CSPs will rely on trusted OSS/BSS vendors and validation of seamless integration and data handling before making a decision.

Making the Change

“Change is a constant factor and should be dealt with the same way the company manages revenues and serving its customers. It is a new KPI that should be traced to understand how the company is changing and ensure that change occurs in the right direction.” – African CSP

CSPs must be careful not to get bogged down in functional definitions of OSS/BSS, and develop requirements that enable consistent operations regardless of customer, product or service. For each new service, OSS/BSS functionality is implemented for fulfillment, assurance and billing. Consistent definitions of each of those functional areas are absolutely essential for day-to-day operation of a CSP. But when defining transformation and remaking the CSP business, functional definitions exclude important requirements for a connected economy, including managing product, customer, service and infrastructure lifecycles.

At the heart of OSS/BSS transformation strategies are new processes and OSS/BSS solutions designed to better design, deliver and support the volume and variety of products that customers demand. Properly executed, OSS/BSS transformation efforts will lead to a single, horizontal

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product-driven business that is network and service agnostic. Figure 8 includes the lifecycles that CSPs must consider when defining OSS/BSS transformation strategies.

Figure 8: CSP Lifecycle Architecture

Orchestration

Infrastructure Lifecycle

Service Lifecycle

Customer Lifecycle

Product Lifecycle

Source: Stratecast

A horizontal OSS/BSS architecture abstracts infrastructure from services, services from customers and customers from products. Elements of each major OSS/BSS functional area defined in the eTOM5 exist at each layer and are vertically integrated to deliver timely and consistent information throughout the business. For all their efforts, CSPs recognize that OSS/BSS transformation cannot and will not occur overnight. Billions have been spent on existing systems, and critical data is scattered throughout the business. Orchestration layers abstract functionality from systems and infrastructure while enabling CSPs to leverage existing infrastructure, OSS/BSS and data.

At some point, transformation strategy and processes become tactical and must be translated into programs, schedules, requirements, solutions and success criteria. While transformation strategy should be the driving force behind any action, a project roadmap is the way to achieve it. CSPs that have implemented strong program management and governance capabilities can use that expertise to manage IT, OSS/BSS vendors and system integrators as they implement transformation projects. No matter how trusted a vendor is, there is still the need for project coordination, requirements validation and testing. CSP transformation will ultimately result in the transformation of OSS/BSS vendors and system integrators. However, there are several things that CSPs must collectively commit to in order to lead vendors through transformation. 5 Enhanced Telecommunications Operating Map (eTOM), as defined by the TM Forum.

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• CSPs must agree – Where vendors claim some amount of competitive advantage from proprietary management systems and interfaces, there is no benefit to CSPs to disagree on standards. To benefit from a standard, CSPs will have to spend money to participate, evaluate and implement the results. Vendors will deliver the standards that CSPs approve.

• CSPs must stay involved – CSPs must remain involved in the standards process. While vendors are the most technically qualified to develop OSS/BSS architectures and interface specifications, only CSPs can apply the pressure required to ensure that architectures match transformation strategy and process definitions, keep efforts on track and ensure progress.

• CSPs must insist on an integrated approach – The only way to ensure that vendors will implement an integrated solution is to make open interface standards, data models, pre-integration and accessibility requirements part of every procurement. All too often, CSPs include only minimum requirements for integration and interoperability in network and OSS/BSS RFPs. Not only must these requirements be included in RFPs, they must be selection criteria and vendors that do not comply—lose.

• CSPs must insist on openness – Whether insisting on a common data model or standardized application or device interfaces, openness must be mandated across operations and with all vendors and partners. Data is collected and used by multiple systems and commonality must become a requirement in OSS/BSS, network equipment, services, partner negotiations and EMS/NMS procurements to eliminate duplication and errors.

• CSPs must get their own house in order – Any divisions between IT and the NOC have to be organizationally eliminated. Network engineers cannot blindly acquire network hardware and OSS without considering the impact on the rest of operations and the business. Likewise, IT cannot continue to insist on developing and maintaining multiple data models, interfaces and endless OSS/BSS integration. Defining business-wide standards for both network and IT procurements and strictly enforcing those standards will help facilitate transformation.

• CSPs must implement a common reference approach – Disagreements about common language aside, CSPs need to implement some type of common reference approach. As cumbersome as common language requirements can be, they have accomplished the goal of aligning the way that CSPs interact. This is a global market and by using common terms and requiring common references and coding, CSPs will know exactly what they are getting and that definitions are consistent worldwide.

CSPs must solve the fundamental problem of defining and implementing common network and service element interfaces, common data models and common operating procedures across the business. A large part of the transformation effort is to simplify operations functions and deliver correlated answers, not just data, to all of operations. By consolidating OSS/BSS, participating in standards bodies and insisting on implementation of specific transformational processes as part of OSS/BSS procurements; CSPs will ensure that OSS/BSS, IT and integration vendors deliver transformation-ready solutions that meet CSP requirements.

“Culture, skill set and a willingness to work on each are the major challenges that face our industry.” – Asian CSP

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Nancee Ruzicka

Director, OSS/BSS Strategy Stratecast (a Division of FROST & SULLIVAN) [email protected]

Stratecast The Last Word

The customer is finally king in the communications sector. Customers now have clout in the communications market because they have choices; and CSPs recognize that if they are to retain their status and revenues in a customer-driven market then fundamental transformation is inevitable. Every transaction is data—from voice calls to e-mail to videos—and that’s a lot of data. Where users now regularly consume megabits of data, the demand for gigabits is just around the corner. As connectivity becomes part of the application, the role of network operator is that of a utility. However, the role of the communication service provider is still up for grabs. CSPs can become global retailers of connected products, enablers of businesses that deliver connected products or suppliers of bandwidth and infrastructure such as servers and storage. Each will choose one or more of these roles, define strategies and operate accordingly.

CSPs aren’t the only ones that need to transform. Customer focus, new business models and new processes should be the order of the day across the industry. CSPs certainly must make drastic changes but OSS/BSS vendors, system integrators, IT providers and even analysts, must evaluate what business they are in and how best to support their customers. Now that quality is a competitive differentiator for customers, CSPs are willing to find a way to deliver a greater variety of high quality products and better support and so must the rest of us. The upside is that improved customer experience and profitability are not mutually exclusive. Transformation that improves quality, reduces redundancy, eliminates complexity, provides better support and delivers more products to customers faster also improves the customer experience. OSS/BSS will lead the way in enabling CSPs to compete in a product-centric marketplace; and both CSPs and vendors must recognize the need to transform to the realities of this new market.

Transformation is painful. When IBM completely reinvented itself in the 1990s, thousands lost their jobs while suppliers and customers alike endured the inevitable bumps and backlash that fundamental change implies; but IBM survived, and both the company and the industry are stronger because of it. Whether through slowly diminishing market share or rapid replacement by a more nimble competitor—the alternative to transformation is extinction.

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About Stratecast

Stratecast assists clients in achieving their strategic and growth objectives by providing critical, objective and accurate strategic insight on the global communications industry. As a division of Frost & Sullivan, Stratecast’s strategic consulting and analysis services complement Frost & Sullivan's Market Engineering and Growth Partnership services. Stratecast's product line includes subscription-based recurring analysis programs focused on Business Communication Services (BCS), Cloud Computing (CC), Communications Infrastructure and Convergence (CIC), Connected Home (CH), Consumer Communication Services (CCS), OSS and BSS Global Competitive Strategies (OSSCS); and our weekly opinion editorial, Stratecast Perspectives and Insight for Executives (SPIE). Stratecast also produces research modules focused on a single research theme or technology area such as IMS and Service Delivery Platforms (IMS&SDP), Managed and Professional Services (M&PS), Mobility and Wireless (M&W), and Secure Networking (SN). Custom consulting engagements are available. Contact your Stratecast Account Executive for advice on the best collection of services for your growth needs.

About Frost & Sullivan

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