Next Generations Networks and Convergence, …so what ?

Next Generations Networks and Convergence, …so what ?

Next-Generation Networks are in vogue for Europe’s incumbent operators, with many of them announcing detailed plans for the deployment of these new networks that will herald a new era in communications. In the case of BT, it took them about nine months from the time they unveiled the 21 st Century Network (21CN), to announcing the criteria for suppliers tendering for the project – roughly the amount of time it took Interoute to build its own 21 st century network from scratch – And that was back in 2002.

So why are they investing so much – €30bn over the next five years – so late?

The rationale behind their decisions is sound: business models are changing; the telecommunications industry must catch up with its internet cousins to sustain a profitable business. This is a lesson IP-savvy new world telcos have already learned, but which many incumbent operators are only now acting on.

But while it may be late in comparison to data-based new entrants such as Skype and Vonage or players like internet-orientated Interoute and Cogent, its fellow old world incumbent telcos have been left squarely behind.

Such are the advantages already being seen by highly competitive all-IP new world players, some of which are already offering free on net calls throughout Europe. A similar move for any incumbent would represent a significant loss of income.

Additionally, new world broadband services are already up to ten times cheaper than the traditional private circuits they replace, and are already carving out significant market share.  Interoute has seen a six-fold increase in network traffic and customer numbers in the last 12 months alone.

So as old world operators like BT and KPN, prepares to join the raft of new world players, they must counter a number of challenges that not only seek to undermine their business model, but will surely lead to a massive erosion of their traditional “heartland” customer base.

One is the sheer logistical nightmare of migrating millions of customers to a new single IP platform, not to mention all the technical work and equipment upgrades that entails.

This challenge should not be underestimated. Being able to migrate customers seamlessly, module by module, focusing on the areas of greatest need first will be vital if these old-world players are to retain their impressive subscriber numbers.

And then there is the PR world’s favourite world – convergence- the nirvana of telecommunications for some operators, where customers can put their different communications (voice, data, web browsing) traffic, down a single connection, using a single protocol to drive better network performance and operating economies.

For so many customers the idea of placing their communications eggs into one basket is a horrifying prospect, but if we assume this issue is a minor irritant, then convergence means substantially reduced bills for customers. Incumbent operators have a legacy of customers paying between twice and ten times the amount they can expect to be charged when their traffic is carried over IP- Next Generation Networks may be bad news for the revenue lines of these incumbent operators.

That, in addition to the fact that these operators are already behind – not just compared to companies like Interoute, but in terms of accumulation of the skills, experience and growth new world telcos are already enjoying, means it will have to move quickly and plan meticulously. A nightmare, but potential, scenario for BT would be that by the time it finishes, 21CN is out of date.

So…a Next Generation Network that can provide customers with cost-advantages may be a bad thing as convergence could take a knife to the revenue lines of these incumbent operators.

What of their carefully crafted business plans? These plans are predicated on the basis of prevailing market conditions and pricing. With customers expecting lower pricing from convergence and operators, like Interoute having a 5-7 year head start, incumbent operators will find it hard to make the numbers work – customer expectation will be lower, revenues harder won and margins less healthy.

In reality, Next Generation Networks answer every business pressure faced by old-world operators, chief amongst them being reducing network management costs, reducing unit cost of applications and increasing the number and appetite of customers.

Benefits that new world players have already proved.

 

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