Next-generation networks present challenges and opportunities

Next-generation networks (NGNs) are the subject of extensive investigations and will clearly alter the industry as operators migrate to the newer technology. We see the pace of change being variable: some like BT are pushing forward fast; others are continuing as long as possible to benefit from their existing network investment; and some already have a form of NGN.

Technological changes are not new in the industry – fibre optics revolutionised the cost of transmission capacity. NGNs introduce more radical changes and this introduces additional problems for the industry to consider. Clearly there are technical issues – defining the NGN architecture, procuring systems and tackling migration problems. Arguably these are not a fundamental problem since vendors and technical experts can help plot a course. We see more profound business complexities that also need to be tackled:

• Identification of where future revenues will come from and avoidance of revenue leaking to service providers as value moves increasingly to being provided by applications and remote platforms, not being inherent in the network technology.
  
  
• Pricing strategies to cope with competitor movements and the erosion of traditional per-minute earners.
  
  
• The removal date and interim operation of legacy networks and services that become increasingly more costly to operate. Outsource?
  
  
• How should regulators treat the new networks and services, when existing regulatory techniques become less relevant or harder to apply and when other regulatory frameworks are also not simply applicable to NGNs?
  
  
• Converged services where voice, video, data may be combined and traditional fixed and mobile services become increasingly blurred. Combined networks and services must be managed.
  
  

These issues raise many questions for incumbent operators deploying NGNs, the regulators, and competitor operators or service providers who need to interconnect to the NGN and develop their own NGNs. Tackling the issues is hard as NGN regimes are not fully in place, so solutions have to be developed based on the best insights and existing experience, plus vision and analysis of possible outcomes.

One thing is clear, the telecoms industry is changing and all players need to adapt and revise their business strategy to cope. Even if an operator continues to use legacy equipment it has to change to connect and compete with NGN players.

Advantages may lie with the major fixed and mobile operators, as we have seen from working with a major EU incumbent. They have the first-mover advantage and have the best insight into costs and technologies. This could allow these players to dictate terms and influence the evolving regulatory structures to their own (legitimate) advantages. However, deploying NGNs could increase costs in the short term (parallel investment) creating a ‘cost hump’ – an issue Ovum has discussed at recent NGN conferences and workshops. This creates a clear need to revise future cost control, revenue and pricing strategies to balance cost increases and the future lower NGN costs. This is one of many strategic issues to consider.

Few can predict the outcomes with confidence. Uncertainty in telecoms is not new, but with NGNs the risks and uncertainties increase. It makes for an interesting time for all telecoms managers. First steps for tackling the issues should be based on understanding and this comes from insights, investigations and discussions. We believe strategic thinking is even more important than technical plans.