Back in December, we had to relocate Capacity Asia from Hong Kong to Macau with two weeks’ notice, due to civil unrest in the financial hub, but 2020 has brought challenges of a different kind. Whether or not you’re in lockdown, I wanted to share some of the key learnings that came out of Capacity Asia 2019.
Turning the tables on the traditional telco
Telcos are overhauling their business models and mind-sets to maintain relevance and revenue. Ask yourself the question: what is the transformation for?
Carriers agree that optimising existing network infrastructure plays an important role in maintaining relevance, but Ravi Mahalingam, SVP at HGC Global Communications, warned that “you have to select the area you want to build your infra… [it’s] important to have bandwidth and enough eye balls in different locations”.
Some carriers might focus on investing in data centres or in a specific growth market, such as India or Indonesia, for example. Furthermore, carriers are going beyond the label of connectivity provider, to become enablers. They are moving towards a model of collaboration to provide an end-to-end solution of “managed services” to enterprise customers, overlaying on top of the infrastructure the means for customers to use the networks how they want to and providing additional services such as cyber security or mobile money solutions.
Hyperscalers, such as Google, Amazon, Facebook and TikTok attract a lot of traffic to their platforms and some have started selling IP at lower prices and building their own fibre infrastructure including subsea cables – raising fears in certain areas, that telecoms might become obsolete.
For now however, OTTs still undeniably bring plenty of business for telcos, from network traffic to cloud demands, such as seen in China Telecom Global selling its cloud services to OTTs. Joe Han, EVP at China Telecom Global, promotes an “If you can’t beat ‘em, join ‘em” attitude especially when it comes to selling cloud services.
There is a big opportunity for carriers to partner with cloud platforms and provide enterprise end users with a good solution to get cloud and connectivity quickly and easily. Similarly, both carriers and OTTs are looking for network and data centre integration solutions, so investment in managed services to support digital transformation could help carriers deliver services faster and more cost-efficiently, making them a more competitive player.
Acquisition can be a means for carriers to pivot and enter new markets or offer diversified services. Many telcos are trying to adopt different business models, for example, Telus acquired ADT, a large security firm providing home and business security. When you realise that Nokia started as a tyre manufacturer, the limits of investment and the ability of businesses to combine their expertise with other solutions are boundless.
Some operators, such as Telstra, have invested in start-ups and thus can incorporate more disruptive, agile technologies and strategies into their service offering. Additionally, carriers are finding that having a network of specialists in different services, as part of their workforce, is a major differentiator.
It’s important not to forget though, that a crucial step in digital transformation is internal. Developing a strategy to transform the organisation and training employees to think differently, in a more customer-centric way, making the organisation as a whole, more agile.
There are multiple ways a telco can transform or transition to a new structure, from M&A to automating internal billing processes and remodelling the raison d’être and business strategy. If you still need convincing, here are 5 reasons to turn the tables on your traditional telco model:
Free up your workforce to understand and address customer needs and deliver a better experience
Modernise the business operations and create efficiencies to manage increasingly complex networks
Reduce OpEx and improve carbon footprint
Gain access to innovative technologies and mindsets and enter emerging markets
Drive more value from new and existing revenue streams and remain competitive
Subsea capacity planning & cable routes
The major drivers of subsea cable investment are high frequency trading and the online gaming industry. Therefore, popular cable routes tend to serve financial hubs and countries with a high uptake of online gaming. This is demonstrated by the fact that as of December 2019, most new capacity is planned from Hong Kong to California, along with new routes linking Singapore to California, in order to avoid the risks of the Luzon Strait and the South China Seas.
However, monetisation of cable routes is a major challenge, due to build cost economics. Cable operators need to adapt their business model to get the most out of current investments. Once the value of capacity no longer justifies the cost of building; either the cost of systems will need to re-align with the cost of capacity, or the price of capacity will need to stabilise.
Consequently, cable operators need to be especially calculated about future investments. The split between planned builds for Trans-Pacific and Intra-Asia cables is equal, but AP Telecom predict that Trans-Pacific routes could see a price decline of close to 35% in 2020/1.
Therefore, prudent investors should examine underserved routes and the Intra-Asia cable projects serving the major hubs of Hong Kong, Japan and Singapore or Japan to the US. For more strategic insights from submarine cable experts and investors, Capacity Media is holding Subsea World on 8-9 July in Marseille, France.
A hybrid approach: core and edge infrastructure
Collaboration and partnerships between network operators and data centre providers is essential, especially as data and decision-making become increasingly distributed to the network edge. Edge infrastructure needs a “hyper network” (super responsive and low latency) to support hyperscale data centres.
Data centre operators need to select long-term connectivity partners who will support their need to scale quickly and on a huge scale, through robust, flexible networking infrastructure and scalable capacity. Data centre construction is very capital intensive, and yet an increase in density of data centre networks and edge infrastructure is needed at a more rapid pace.
Therefore, hyperscalers are investing in data centres and some of which are required to integrate military grade security. The major drivers for this investment include cloud gaming, visual FX and AI.
Carriers are also latching on to this opportunity, for example, HGC have acquired data centres through Macroview in Hong Kong; “we believe this is where the battle has to be fought”, to serve clients through managed services. Edge computing is a big investment opportunity for those creating data centres, especially in smaller towns and less developed economies, such as in South-East Asia.
Future: Applied
It is widely believed that timing is everything, and that investment should be in projects that are building for the future. We need to envisage now what the market will need in 10 years’ time. It is notable that China has a 5-year investment plan, focusing specifically on AI and security.
Furthermore, China and Japan are the 2nd and 3rd highest global investors in R&D, with South Korea having the highest R&D intensity in the world, according to a report by the US National Science Foundation. There is plenty of hype around future technologies such as blockchain, AI and AR or VR, but it’s important to evaluate how these apply to the industry and add value.
AI, for example, can harness big data to optimise networks, forecast potential customer requirements and ultimately increase revenue. Equally, there is plenty of innovation in the satellite space, of which telcos would do well to take note.
There is much to gain from collaborating with satellite operators connecting the unconnected; given that terrestrial and subsea cables physically cannot reach everywhere and many jurisdictions in Asia cite universal coverage as a prerequisite for licensees. It might seem an obvious point, but not many telecommunications companies are very proactive about partnering with satcos and satellite operators are also aware they need to integrate more with the wider telecoms industry.
Satellite operators are trialling new innovations, such as software-defined satellites and low-earth orbit. The latter has not yet proven sufficient RoI, and has in fact bankrupted several companies, such as LeoSat and OneWeb, who invested in the technology. Therefore, telcos need to understand which operators are investing in which technologies, in order to form successful long-term partnerships.
However, innovation is not just about technology, it is also about ensuring that the industry can be sustained for the future and continues to deliver valuable customer experiences. That means rethinking the skills gap, how to develop talent; evolving business models and cutting the carbon footprint of an industry, which expends a huge amount of power.
This is the premise of our new track at ITW – Future: Applied. Watch this space for more information.
