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Telecoms Infrastructure As a Service

More than a decade ago we predicted that the telecoms industry would be transformed, driven by its own innovations and technological developments. As a result we indicated that in many situations the telecommunications infrastructure would be offered as a service by hardware providers. We also predicted that this would open the way for a better sharing of the infrastructure.

The digital economy, driven by the internet, has lowered the transaction costs of the outsourcing companies and, together with globalisation (of which the telecoms industry is perhaps the best example) changed the infrastructure market forever.

In general we were right on the first count; but we still have to see more action happening on the second. I remain confident, and, in the mobile infrastructure market at least, some of it is starting to happen.

What prompted me to revisit this was the merger (sorry, ‘cooperation’) between Cisco and Ericsson. While there has been a nice spin given to the cooperative arrangement, in the end it is just another facet of the rapid commoditisation of the telecoms market, and a further reaction to the rise and rise of Huawei.

Where Ericsson has been very successful is in the offering of infrastructure as a service. My predictions were made at the time when Ericsson basically began to take over the management of the mobile network of Bhatia in India. It happened gradually but it certainly emerged as a great outsourcing project; and since that time the company has been able to tie over one billion mobile phones into their outsourcing arrangements with the various networks around the world, which they now largely manage on behalf of all of those operators.

This is an enormous differentiator between Ericsson and Huawei and one that it will not be easy for the Chinese company to tackle, at least not in the foreseeable future. With Cisco jumping on board the outsourcing offering can now be extended further, and we see this as one of the major drivers of the recently announced collaborative deal.

Within these outsourcing deals Ericsson now also manages a large number of equipment from other vendors, including Huawei equipment, and that is making this aspect an interesting element of the overall vendor landscape, and shows the dynamics that are in play here.

Looking back over the last decade it is also good to realise that Ericsson is now the largest telecoms vendor, followed by Huawei. Furthermore Nokia and Alcatel-Lucent have since merged; Nortel has gone; Motorola was gobbled up by Google; and a whole range of smaller specialised companies have arrived in areas such as transmission, switching, FttX, 5G, Wi-Fi and so on.

Requirements are shifting towards capacity building and scalability, flexibility and resilience, open systems and connectivity.

Going back to the trend of outsourcing… a side effect of this development has been that not all telcos are good at managing outsourcing. The risks attached to this were exposed when the civil works contracts became the weak link in the supply chain in the Australian NBN contracts. This required a complete overhaul of those contracts to include far more detailed specifications in order to limit the risk of such outsourcing deals.

And the NBN company is certainly not alone in this. Similar outsourcing problems have been encountered by telcos around the world, but everybody is getting better at it.

Will it stop here? Most telcos still maintain their own design and planning, but some companies are already also outsourcing those elements. Obviously this increases the risk, especially if those contracts are outsourced to vendors who also make the products that are going to be deployed on the network. There certainly are conflicts of interest involved in this, and as a result we have seen the rise of independent infrastructure management companies that manage the full ICT infrastructure across vendors without a conflict of interest.

At the same time, in other parts of the industry the opposite is happening—a stronger ownership is being taken in relation to infrastructure. Backhaul, data centres, cloud computing and wholesale operators have placed a stronger focus on infrastructure ownership. And so has, for example, Google—by managing the ICT infrastructure itself that company aims to develop specific features and products that will give it that competitive edge in the market.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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