What makes telecom change?

On getting ready to re-enter the industry I thought I would spend some minutes reflecting on what happens next. The last seismic change in telecom was in the 1990s with the rollout of 2G mobile networks, communication to a person, not a place. It was seen as the magic it was. In the 90s this made mobile telecom the equivalent of cloud today with 40% CAGR for those involved. The amount of innovation was extreme. New mobile network operators in the USA, building greenfield coverage, were giving unlimited plans to encourage growth. People were using mobile phones as baby monitors for a while. When the network went down for the weekend, people owing money paid their bills thinking they had been disconnected. The CMO did not think this was a sustainable strategy. It was truly the cloud of its time. Since then, every 10 years a new generation of technology has been released, increasing first voice capacity through circuit-switched codec innovation and more recently through packet radio data throughput.

The green box indicates where we are today. Technology has been optimized, architecture has been optimized, the business has not.

What is the problem?

While each generation of technology has exponentially improved, nothing else has changed in telecom since 2G.

And technology has exponentially improved around telecom with the internet, cloud and software. Business and organisation has not changed, it is always easier to forklift hardware than people, processes and beliefs. And this has led to stagnation, both in terms of new service creation and also cost of operations. 50% of operator topline is spent on OPEX. 80% of CAPEX is spent on expensive radio appliance rollout.

As STL Partners note...

Only 5% of operator investment is placed in non-network service innovation and delivery!

Telecom cannot afford any more since they spend all their money on building and running networks. Yet cloud natives are doing the exact opposite and have exponentially decreased what they are spending for hardware, supply chain and operations. Now telecom operational and organisational innovation will happen for the first time since 2G. There is no choice. What will make this change accelerate and start to cascade? What will make the unstoppable force move through the immovable object? I predict three forces, 2 proactive, one reactive.

1. New Market Economics Rather than Existing Economics

The latest quarterly report from AT&T lists their postpaid Average Revenue per User at $54.24. Average revenue per user in India is less than $1. Reliance JIO realized that radical new designs on technology and supply chain were required to make mobile communications affordable to the masses. What Reliance Jio did to mobile vendors is no different from what Facebook did to enterprise server vendors 15 years previously. Facebook had extreme business conditions, a business model with zero direct dollars but exponential growth and costs. Facebook could not make the traditional vendors change so they had to stimulate the making of something else at a completely different price point. Normally when this happens the request from the customer is to take things out rather than add more things in.

Because of Reliance Jio's disruptive entry the mobile communications market has been violently changed for all other operators. Could other operators have been as equally disruptive on their requests to the vendor companies? Yes. Did they? No.

2. Leadership Economics Rather than Status Quo Economics

Economics that can support inefficiencies do not have to. Disruption can be caused by any company radically changing the status quo of any market. This normally requires very strong, almost dictorial, leadership. Think Jeff Bezos and Amazon. And think Hiroshi Mikitani and Rakuten Mobile in Japan. Does Japan need another network? No. Are we sure? Is the new network being built the same way as existing networks? No. What happens when a new network can deliver what the existing networks can deliver, at a fraction of the cost, at a radically faster speed, and can start to offer more services with much more ease. The reality is that nothing Rakuten Mobile is doing is particularly risky. It has all been proven out as the right way to do things outside of telecom. It is just telecom has resisted adopting the changes, in approach, organisation and process. Rakuten Mobile has moved telecom from a hardware mindset to a software mindset. It has taken all the learnings from Reliance Jio about removing unnecessary cost, even when it was not as immediate it needed to. Rakuten Mobile will not spend all its money on building and running a network, it will invest in what to do with that network.

Follower Economics Rather than Leader Economics

The previous forces are proactive and are available to anybody. The last is reactive and a choice between viability and demise. The change in the industry is now inevitable. It is unclear which parts of the ecosystem will be best positioned in ten years time but any betting person would put money on the parts that are investing the most in future skills and capabilities versus defending the old. This means becoming software driven rather than hardware driven. This means seeing everything as code. This means becoming better at applying new skills than the people applying them today. It is not hard, it just requires starting and burning the boats on the beaches so there is no way back. There is no way back in reality but the human mind always believes more cheese will come . Public cloud deals in telecom are now happening on a regular basis but it is important to understand this is not a solution to telecom, it is a solution to public cloud. The hyperscaler providers are already software companies, need to maintain growth trajectory and require further penetration. Their strategy is not telecom's strategy and if there is no telecom strategy, the outcome will be their strategy. Telecom is no different from any other industry in this regard. The best companies are the ones that leverage the massive investments made by hyperscalers, while executing their own plan. Netflix is a good example of a future service provider.

Last Thoughts

Telecom is no different from any other traditional industry in any regards with respect to digital transformation. It has struggled with existing behaviours, processes and organisational structure. It has struggled with attracting the right talent. And it is about to be the industry to be disrupted by 5G first (to quote Dean Bubley ). The religions of the past will not secure the future. The concept of "telco grade" needs retiring into the annals of history. Today every company is a service provider and every industry requires perfect delivery. How it is architected is just massively different, it is designed based on the complex system inevitability of failure rather than the avoidance.

What happens when the unstoppable force meets the immovable object? The object moves.

I think this is the most exciting time to be in telecom since the 90s.

I hope it is