Disruptive technologies are giving fixed telcos a headache

Sally Banks/Ovum
15 Jul 2009

With declining traditional voice revenues, slowing broadband growth and a global recession to contend with, operators are looking for ways to cut costs throughout their business.

New technologies offer more efficient ways of running the network; the flipside is that they require significant investment. The business case is therefore sometimes difficult to establish, especially when operators are looking to sweat assets, maximize margins, and reduce or maintain current capital expenditure levels.

As most of the new network technologies require significant investment and/or duplicate existing technologies, it is very difficult for operators to build a compelling business case to deploy them. Although many will achieve overall efficiencies in the network in the long term, the global economic climate is forcing many operators to delay decisions on new implementations when their existing networks can manage just as well with current demand.

As telcos look to offer more advanced IPTV offerings, and customers use more and more high-bandwidth applications, the need for greater fiber investment in the network becomes inevitable.

The cost of deploying fiber (particularly in the last mile) is considerable and the return on investment uncertain, so this is a risky move, but one that operators may feel they have little choice but to make.

Network-based competition does not fit well with such plans, and regulatory uncertainty could significantly affect either investment or the competitive nature of the markets. Regulatory bodies therefore need to set clear and detailed guidance, and do it quickly, if the industry is to move forward but remain competitive.

Incumbent wireline operators deploying fiber may therefore benefit from significant positive disruption in delivering higher broadband speeds and enabling new services. However, it may entail negative disruption for alternative operators that either wholesale from the incumbent or are looking to deploy their own competing fiber infrastructure.

The promise of greater bandwidth and capabilities for mobile broadband services is what is driving mobile operators towards LTE. Therefore for mobile operators, despite the difficulty in building a business case for LTE, it can be viewed as a positive disruptor (in a similar way that fiber is considered a positive disruptor for fixed-line telcos).

For wireline operators, however, a mobile infrastructure that enables significantly improved mobile broadband capabilities provides a negative disruption. If LTE is deployed (particularly in emerging markets where fixed penetration is low and mobile penetration is much higher), and is used to provide broadband in areas not reached by the fixed network, then there is a real threat that wireline operators with no mobile arm will be rendered redundant.

There are numerous opportunities for telcos in the IT space, especially from software-based services such as cloud computing and virtualization, as well as web 2.0 applications, which enable greater efficiency and flexibility within the telco from existing assets. The telco needs to ensure it leverages these opportunities effectively to stay ahead of its competitors.

The web is already the most widely-used development and deployment platform for digital applications and services in terms of number of developers, number of users and sheer volume of content and services.

However, web principles of openness, interoperability of services and consumer choice are typically at odds with telecoms service provider requirements.

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