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April 2017
A Practical Guide to Transformation How to Evolve Beyond Network Services to Include Digital Services
Stratecast Analysis by
Karl Whitelock
An Executive Brief
Sponsored by HPE
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 2
A Practical Guide to Transformation How to Evolve Beyond Network Services to Include Digital Services
Introduction1
Network technology has been a part of the communications industry for the past 130 years, and will continue to be a major focus point within any communications service provider (CSP) business strategy, both now and into the foreseeable future. However, forces are at play that threaten the financial stability of CSPs the world over, including:
Soaring mobile user data volumes without a corresponding increase in revenue
Declining voice and SMS messaging traffic
Changing customer perceptions and expectations
Expense of technology proof of concepts, service evaluation trials, and deployment rollouts
While the rate of growth for traditional network services may be declining, these services still account for the bulk of any CSP's annual revenue. However, the global change in customer attitudes and competitor focus on new digital services cannot be ignored, especially since digital services depend on ubiquitous broadband coverage and reliable network connectivity. Striking a balance between network services and the evolving digital services world is the right answer. But what does this mean for CSPs today? How can network services remain competitive? And, how will digital services fit into the long-term business strategies that CSPs everywhere are now developing?
This paper explores what CSPs need to do to maintain their central focus in today's transformational environment. It explains why CSP evolution to the digital services world requires a well thought out plan to manage existing network customers, address growing shareholder expectations, and deliver the highest value to consumers and businesses. For example, in a recent survey involving a sampling of senior IT and line of business decision makers at CSPs across the world, nearly all cited that their respective organizations have a digital service provider (DSP) transformation strategy in place. They also expect to generate additional revenue with their transformation (73%), rather than using it as a means to protect existing revenue. Most importantly, over 50% of these survey respondents stated that their respective organizations plan to implement their strategies over the next 12-24 months.2
While no two companies are the same, this paper shows that there are many points of commonality that need to be aligned, for minimizing risks and advancing business continuity. The paper also provides insight on how one digital solutions and professional services supplier, with a deep history in the communications sector—Hewlett Packard Enterprise (HPE)—is meeting CSP expectations and ongoing customer needs for all parts of the digital transformation journey.
1 In preparing this report, Stratecast conducted interviews with representatives of the following companies:
Hewlett Packard Enterprise – Alain Decartes, Network and Digital Service Solution Marketing Lead
Hewlett Packard Enterprise – Paolo Balella, Global Transformation Lead, Business Transformation Services
Please note that the insights and opinions expressed in this assessment are those of Stratecast, and have been developed through the Stratecast research and analysis process. These expressed insights and opinions do not necessarily reflect the views of the company executives interviewed.
2 HPE commissioned the survey, published in late 2016, involving the opinions of 134 IT and line of business senior decision makers across the world, concerning CSP to DSP transformation. For additional insights see the HPE report: A New Role for a New World - Communication Service Providers Shifting Priorities and Strategies, January 2017.
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 3
Source: Stratecast
New Market Realities and Evolving Business Opportunities
Before the discussion about DSPs became prevalent, new market dynamics began to rise. For example, global data transport volumes are continuing on their exponential ascent; with the proportion of mobile users consuming more than 2 GB of data per month rising from 13% at the end of 2012 to 65% at the end of 2016.3 In addition, the amount of global wholesale voice traffic between 2015 and 2016 dropped at a YoY rate of nearly 10%.4 And customer usage of over the top (OTT) services has accelerated substantially over the past two years.5 While concerning in some ways and impressive in others, each of these cases depends on a secure, reliable and ubiquitous network connection.
These and other indicators, including advances in the mobile radio, access network, are providing an impetus for CSPs to change, and to
support new types of customer demand. This demand is coming from the consumer segment and numerous facets of the large business and enterprise sectors. Companies in every industry are transforming to a services-based economy, with an assumption that network connectivity will always be available to address growing bandwidth demand. But, a services-based approach to business needs much more, as partner ecosystems are defined, advanced network functions are introduced,
and new "dynamically flexible" business models are revealed.
Customers are rapidly adjusting to paying for outcomes—not just buying products. This involves personalized services, often from the contributions of multiple partners. Such partners include application developers, cloud-based solution suppliers, network operators, Internet of Things (IoT) providers, content developers and even advertisers.
There is an expanding role (and new business opportunity) for CSPs to engage with the delivery of not only ubiquitous network connectivity, but orchestration of contributions from multi-partner ecosystems. Orchestration, as a part of digital services transformation, is the enabling force for delivering new services that not only provide high customer value, but also yield new revenue streams with positive year-over-year growth.
3 The numbers noted are from actual statistics obtained from Tier 1 mobile operators globally. Insight obtained from the Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2013, 2014, 2015, 2016 and 2017.
4 A large international network provider claims that 1 in 10 international voice calls travel across its network. It reported 53 billion minutes of wholesale voice traffic traversing its global network in 2015, which dropped to 48 billion minutes of wholesale voice traffic in 2016. This represents a YoY decline of 9.4%
5 Every 60 seconds insight obtained from multiple sources including Qmee and Ingram Micro Cloud.
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 4
Source: Stratecast
Combined with a push from the market realities that now come with an always on, always connected society, multiple emerging dynamics are creating a vast degree of new business opportunity for not just CSPs, but the partners that work closely with them in creating new digital services. Transformation takes on many forms and has multiple entry points; with the risk of upending continued customer revenue from the sale of network services, at one end, to committing to which transformational step to take first at the other.
Embracing Change as an Essential Component for Business Success
Today's business realities require all CSPs to continue operating their installed revenue-generating networks, and to manage existing business processes. But, supporting the needs of digital services is also a growing necessity. There are three fundamental steps all CSPs should consider in order to successfully transform to an organization that provides not only network services, but also advanced digital services. These steps are: define a long-term business strategy; resolve to evolve as an enabler of digital services; and work with a trusted partner along the transformational journey, to better facilitate business success.
Step 1 - Define a Business Strategy for Now and the Long Run
Current services, processes, and systems must remain operational during any type of transformational endeavor. However, going about the transformation from yesterday's operating and revenue-producing business to a new world of digital services delivery and management requires a well thought out strategy.
Central to this strategy is a realization that it may be very challenging for a CSP to pursue all customer categories as in the past. In the digital services environment, each customer category comes with a different set of business challenges, new business opportunities, different ways to define success, and various infrastructure needs. As such, the systems, processes and business concerns for meeting the needs of each customer group will likely be different. For most organizations, this means an intensified effort around some of the major customer categories, as noted below in Figure 1, which include:
Consumer and small business services
Advanced large business and enterprise for internal needs, and for empowering these customers with help to better address the needs of their customers
Wholesale approach consisting of B2B partnerships and horizontal orchestration (enterprise business service offerings centered on delivering a service rather than selling a product)
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 5
Figure 1: CSP Target Customer Segments
Source: Stratecast
Any business redirection, enabled by change in business strategy, must be tied to challenging questions such as the ones listed in Figure 2, below. In some markets, certain opportunities, such as improving the customer experience, are very important; while in others, advanced business enablement demands higher attention. The global market no longer works the way it did: one service concept developed in one part of the world is then taken to other parts, expecting to show similar results. Business success is now defined through offering a family of service opportunities for select customer markets. Flexible methods to rapidly design new services, and then to make quick adjustments when market factors require, are essential in the new network plus digital services environment.
In addition, recognize as part of this strategy that the CSP to DSP transformation process is an evolutionary journey. It has to be, in order to stay abreast of the technological and business operations challenges that are constantly in motion. Most importantly, there will be many successes along the way, measured in incrementally-defined steps. And, there will be unexpected results that may have both positive and cautionary outcomes.
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 6
Figure 2: Planning Strategy Questions
Strategy Input
Internal Planning Questions for Consideration
Customer Groups
What customer groups should we focus on the most?
Can we look at more than one group and meet revenue and profitability expectations with planned resource (people, technology and systems) commitments?
Should we focus on the customers of our large enterprise customers?
Partner Ecosystems
How do partners fit into our strategy?
To what degree do we partner for capabilities not within our current ability to deliver?
To what degree do we create an environment that encourages a community of partners?
Can we provide a platform and services domain to enable partners to work together?
What services and capabilities can we provide that will help partners to strengthen the value proposition to their customers or even to other partners?
Installed Networks
Should presently installed network technology and systems remain in our strategy?
If yes, at what level can they be used in the definition, assembly and delivery of digital services? When should we plan for their end of life?
Since hybrid network architectures will likely be around for several years, how do we define the point when legacy network technology needs to sunset, before it and associated systems can no longer address the needs of digital services?
Systems and Processes (New and Existing)
Do our current data privacy and business enablement policies allow for new systems deployment in any other business model than a traditional usage license?
If yes, what circumstances should be considered for engaging with SaaS-based operations and monetization solution suppliers to address evolving business needs?
At what point do we integrate new systems functionality into our installed systems; or do we keep support for new digital services separate?
Under what situations or with what types of digital services are we better off turning down installed systems in favor of the capabilities provided by newer ones?
Are microservices the right approach for meeting the needs of digital services?
Is a microservices strategy the best way for us to integrate our digital services needs and corresponding new solutions with existing systems and processes?
Advancing New Network Technologies
How is NFV incorporated within our strategic network technology deployment plans?
What policy rules should be implemented to define use of virtual network functions (VNFs) over installed network elements for the delivery of digital services?
Have we defined a network monitoring, service assurance, and monetization approach for VNF enablement?
What procedures (manual or automated) should be enacted for adding VNFs to address capacity needs or service monitoring performance issues with already deployed VNFs?
How will VNF license management, copyright protection, and partner royalty payments be addressed?
Should we be operationally planning for 5G-enabled services now?
If so, what type of focus should we have and what types of customer groups do we target if digital services are the future?
Or, is it still too early to engage planning for 5G-based digital services because the technology and deployment process is not fully defined?
If too early, when do we need to begin and what are the types of digital services we can expect to offer our customers when 5G is here?
Source: Stratecast
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 7
Step 2 - Resolve to Evolve
Transitioning into a DSP would be simpler if existing systems, processes, and network capabilities could be discarded in favor of new solutions and technologies. However, abruptly abandoning decades of network investment, most of which is operational with revenue-paying customers, is simply not practical or realistic. Containing operations costs in a network plus digital services environment means that some level of network infrastructure and operational process transformation is essential before longer-term business strategies can reach a state of operational practicality.
For most CSPs, transforming from an operator that delivers network-based services to a DSP, as shown in Figure 3, can involve a number of evolutionary business components. The order and emphasis on each component are not important; but each should be considered, to determine its applicability with the business objectives of the new network plus digital services organization. Doing so will help the new organization take advantage of not only the continued revenue-bearing benefits from installed physical infrastructure, but will also help form a means for incorporating new functionality supplied by advancing technologies.
Figure 3: The Business Transformation Pathway Forward
Source: HPE, Stratecast
The five major business focus areas for DSP evolution are:
Consolidate to Converge. In the early beginnings of any transformation plan, commit to reduce operational expenditures by consolidating media and call applications onto a common platform. In addition, use a converged platform for all network technologies, to better enable a smooth migration, and to promote application re-use whenever possible. Without addressing this need, the ability to offer advanced network and digital services becomes increasingly more difficult as the transformational journey continues.
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 8
Adopt a DevOps6 Culture. Enable agile application creation and testing based on DevOps practices. With regard to specific network capabilities, there are a number of technologies to leverage such as WebRTC, VoLTE, and IMS communications. Beyond these technologies, network big data can be exposed via common APIs, such as those defined by the TM Forum's Open API initiative7 for agile development and continuous delivery.
NFV Ready Infrastructure. The adoption of NFV is a key enabler for building compelling digital services that combine a CSP's core capabilities with web services. While dedicated hardware is always an alternative approach, embracing VNFs through automated deployment promotes an agile development environment. In addition, NFV is paving the way to deploy new digital services that are elastically scalable, with near "zero touch," which can be more cost effective in the long run. For example, certain network capabilities provided today by dedicated equipment can be upgraded to VNFs. This implies leveraging NFV and standard IT infrastructure to optimize the use of hardware, to create a faster pathway to get services to market, and to deliver the flexibility for responding to changing market needs. Additionally, take advantage of NFV management, orchestration of features, and integration of components at the service definition layer to deliver advanced network functionality to customers of all types.
Self-Service Digital Services. The key to happy customers, at not only the consumer level but at the business customer level, is to provide service offerings that customers can activate, access, or enhance directly. This implies many things, including smart digital conversation services, programmable SIM (eUICC-based) opportunities for IoT and M2M services, a digital services marketplace, and exposure of WebRTC or network data insights via APIs. A potential new set of revenue streams are made possible by services on-demand through use of various aspects of traditional network functionality and VNFs.
Digital Service Broker. Foster direct and indirect sales channels by playing the role of digital services broker for a variety of partner interactions and services delivery. For example, this concept enables businesses that have traditionally sold products to customers, to now sell these same products as services via a XaaS business model.8 In addition, several other models are enabled including: B2C (DSP selling its digital services to customers); B2B2C (DSP selling digital services of partners to customers); B2B2B (DSP selling partner's digital services to other partners in the community, which will then use these services to build new digital services); and B2B (DSP selling its capabilities to the community of partners, to build digital services).
6 Amazon Web Services defines DevOps as: "the combination of cultural philosophies, practices, and tools that increases an organization’s ability to deliver applications and services at high velocity: evolving and improving products at a faster pace than organizations using traditional software development and infrastructure management processes."
7 The TM Forum Open API initiative, to date, has defined 31 REST-based open APIs for network operations, including: product catalog, inventory, trouble ticking, billing, performance, and privacy, to name a few. Any developer can register and use these APIs within any digital services development effort.
8 XaaS is a monetization model whereby a business that traditionally sold its wares to customers, now sells them as a service. In addition, partner ecosystems within the same community can create and sell digital services at both a retail and wholesale level, which opens a vast opportunity window for both suppliers and customers. Added insight, with illustrative examples of these new business models, can be found within Stratecast report: SPIE 2017-09, Monetizing Digital Services and Partner Ecosystems: New Approaches are Needed to Meet Business Expectations, March 17, 2017.
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 9
Unlike transformation attempts in the past, evolving to virtual hybrid network architectures, with associated new business systems and processes, is not an easy task. Nevertheless, hybrid networks will play a critical role with the definition and delivery of advanced network functions essential for supporting digital services. Such services will involve partners, suppliers, and a reflection back on customer usage behavior as a means for providing better and more personalized service offerings.
Step 3 - Select a Trusted Partner
There is more involvement in the DSP transformation journey with systems and processes—inside and outside the network—than with network technology alone. Evolving existing network and business processes without engaging the implementation experience, best practices insight, and operational knowledge provided by a qualified professional services partner is not a prudent and practical approach to the DSP transformational journey. Such a concern includes updating installed network hardware via addition of new IP nodes, switches or software gateway capabilities. It also includes updating existing processes and systems with new business definitions, or implementing new business management and network orchestration solutions.
While the "work with a trusted partner" approach is a reversal of actions taken by many operators over the last few years in an attempt to reduce costs, transformational processes are fraught with risk and will likely add additional operational costs before efficiencies with existing processes are reached. However, failing to engage with a trusted partner that has transformational experience will greatly increase the odds of not obtaining the anticipated results defined by the long-term strategic plan. A partner can deliver key benefits along the step-by-step transformational pathway, as illustrated by Figure 4.
Figure 4: CSP to DSP Journey Requires a Partner-Based Approach
Source: HPE, Stratecast
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 10
Engaging a partner with network and business management experience is the only way to advance towards a flexible and agile digital services environment. Such an approach will drive not only large business and enterprise customers to new opportunities, but in the end, will also provide CSPs with new ways to better meet customer needs.
HPE Enables Network to Digital Services Transformation
As CSPs evolve from network services providers to more complex DSPs, it is important to remember that a flash cut, from what was to what must now be, is not a wise business decision; especially when considering that the needs of existing customers must continue to be addressed.
HPE's core solution and services capabilities can help CSPs focus on the network services to digital services transformation. As shown in Figure 5, these capabilities are aligned with business outcomes that are most important to organizations that view the CSP to DSP transition as essential for their long-term success.
Figure 5: The Benefits of Addressing Transformational Change
Source: HPE, Stratecast
Shown in Figure 6, below, HPE recognizes that different organizations are presently at different stages along the network services to digital services pathway. The company has defined its solution and services offering capabilities in a manner that can help any organization along its transformational journey.
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 11
Figure 6: HPE's Network Services to Digital Services Solution Support Pathway
Source: HPE, Stratecast
HPE's network and digital services support strategy allows it to meet the needs of any CSP, at any stage, around four management categories: Network Applications, Digital Services Enablement, SIM and eUICC Management, and Business Transformation Services. Details include:
Network Applications – Network applications solutions embrace the evolution of broadband networks. This enables CSPs to keep driving new revenue from current network services, and reduce operational and capital expenditures. HPE can help any CSP implement migration, consolidation, and virtualization of all network services—which can decrease time to market for new and modified multimedia applications.
Digital Services Enablement – HPE's digital services enablement solutions make it easier to build and deliver applications and services that incorporate network assets and revenue-sharing partnerships with developer and content communities. Digital services enablement allows CSPs to address retail-based and resell-based business models, and showcases IoT capabilities to third parties. These solutions allow CSPs to capitalize on two key business drivers: improving internal service development; and exposing network and big data assets to third-party developers through APIs. As a digital service broker, CSPs can create new revenue streams, collaborate with Over the Top players, and improve the customer experience.
SIM and eSIM Management – With SIM and eUICC management, HPE covers the cycle of new device introduction within the network. For example, provisioning and managing a
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 12
new SIM, number and IMSI profiles with its Dynamic SIM Provisioning solution, along with checking the compliance of mobile devices attaching to the network.
Business Transformation Services – HPE's business transformation services help CSPs to orchestrate business transformation to provide measurable improvements. HPE helps executives develop a strategy to enhance their customers’ experience, achieve operational excellence and service creation potential, and define the roadmap for transformation execution.
Working with a trusted partner such as HPE, to reduce the risk from unknowns and to improve the chance of business success to the level that a strategic plan will demand, is not only practical, but essential for any organization that has not undergone such a redefinition of business before. HPE customers all over the world have deployed solutions in several different environments, and for various business reasons. The company has multiple transformational successes, ranging from basic network services including prepaid recharge or voice recording; to LTE network integration involving VoLTE prepaid and LTE call management; to more sophisticated digital services associated with big data and multi-media insertion (next best offer). HPE also works with key partners to bring other strategic virtualized network functions to bear, such as vIMS.
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 13
Stratecast The Last Word
Transformation is nothing new for CSPs, but the challenges are different this time around. Technically, the changes under consideration are far more complex than simply swapping one switching, routing or signaling hardware technology or protocol for another, as was done in the past. The proposed changes today are so profound and sweeping as to justify dispensing with the concept of networking entirely; and thinking instead in terms of enabling infrastructure and platforms for the delivery of digital services. Even from a business perspective, the DSP business model is different from past models because there is so much at stake, involving partners and interaction with a very complex network construct.
Partner ecosystem-based business models are becoming the norm in many industries; and as CSPs evolve to DSP status, new ways of doing business become the standard approach. This new environment requires advanced solution capabilities and flexible systems to meet changing market conditions. The most eye-opening of these new business models will likely involve business relationships that may only last for a single instance of a customer-defined service. Perhaps even more challenging is addressing the monetization aspects of VNF license usage; or the notion that partners will come together to create service offerings where a network connection is only a small part. This is the new world of a digital services provider; with different focus points according to company business objectives, customer audience, and, for a time, regional focus.
CSPs should now consider making the DSP transformation a serious component of their virtual network strategy. The objectives and required changes of CSP to DSP transformation are compatible and complementary with those of virtual network enablement.
CSPs looking to become a DSP would do well to consult suppliers such as HPE that have broad software portfolios, a committed DSP strategy, design consulting capabilities, and deep integration and transformation expertise. The only point remaining is the decision to put everything into full motion before competitive forces fully consume the end-user customer's mindshare.
Karl M. Whitelock
Global Director Strategy – Operations, Orchestration, Data Analytics and Monetization (ODAM)
Stratecast | Frost & Sullivan
April 2017 © Stratecast | Frost & Sullivan, 2017 Page 14
About Stratecast
Stratecast collaborates with our clients to reach smart business decisions in the rapidly evolving and hyper-competitive Information and Communications Technology markets. Leveraging a mix of action-oriented subscription research and customized consulting engagements, Stratecast delivers knowledge and perspective that is only attainable through years of real-world experience in an industry where customers are collaborators; today’s partners are tomorrow’s competitors; and agility and innovation are essential elements for success. Contact your Stratecast Account Executive to engage our experience to assist you in attaining your growth objectives.
About Frost & Sullivan
Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants. For more than 50 years, we have been developing growth strategies for the Global 1000, emerging businesses, the public sector and the investment community. Is your organization prepared for the next profound wave of industry convergence, disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies? For more information about Frost & Sullivan’s Growth Partnership Services, visit http://www.frost.com.
CONTACT US
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About ODAM
The processes and tools that communications service providers (CSPs) have utilized to run their businesses have changed over time. More than a half-century ago, CSP network and business management processes were manual (OAM&P). As CSPs evolved over the years, so did the operations support systems (OSS) and business support systems (BSS) that address CSP business and network management needs. In recent years, the lines between OSS and BSS have become less clear, with much overlap. In addition, the roles in which OSS and BSS operate have expanded beyond traditional boundaries. As such, Stratecast now uses the term Operations, Orchestration, Data Analytics & Monetization (ODAM) to encompass both the traditional OSS and BSS functions and the new areas in which business and operations management must now work together, including virtualized networks and telecom data analysis.
