Already before the Covid-19 pandemic, loads of data traffic generated by video/music streaming, web researches, phone calls and home offices were generated. What most people don’t know: in the core of the telecom industry, #interconnection & #wholesale assure that each data packet reaches its destination, mastering the #interoperability between the networks at best quality and competitive prices. The Covid-19 crisis has emphasized its crucial role as system relevant infrastructure, unveiled some weaknesses but also opened new opportunities. It has also accelerated the overall mega trend-driven change of the telecom, and more specific, wholesale industry. All levels of the telecom value chain and all segments of the wholesale market are affected in one way or the other: Internet, data networks, fibre backbone, data centres, FTTB infrastructure, voice and messaging. What is common to all providers: this now the perfect time to ‘tidy up’ your business in order to leave the crisis stronger than ever and your competitors: review your value proposition and business model, seek experts’ advice and take your individual strategic choices now. Macroeconomic experts forecast heavy post-crisis Capex investments in the telecom industry because of three factors: historic cashflow, trends in the capital market and governments’ economic programmes. On a longer term, we will also see accelerated Opex optimisation efforts through digitalisation.
© subtelforum Massive transformations will lead to major adjustments of business strategies, reallocation of budgets and re-prioritization of projects are required to adapt the ‘new normal’. Only companies who take the right measures now will leave the crisis successfully.
Internet Interconnection To an unprecedented extend, diverse factors have been driving internet traffic: data rates and use cases for 4G (and even more #5G) and fixed broadband, corporate and public cloud-based applications, high resolution plus the trend to digitalise and connect everything. Everyone has been part of it – everyone knows it: but since one continent after the other joined the Covid-19 lockdowns internet traffic has been exploding. However, this also demonstrates just how much the world depends on the internet – and technically on interconnection & wholesale - over the last few months. On 10 March, the world’s largest internet exchange #DE-CIX Frankfurt, recorded a new all-time traffic peak of more than 9.1 Terabits per second, more than nine months ahead of the forecast. In Italy for example, peak throughput increased by up to 90% compared to the weeks before lockdown. The increase in data volume has a name: video, both, streaming and conferencing. We expect that this new level to remain, 50% long-term home office and 25% home schooling. Internet service providers should review their capacity planning and provisioning models. They also might consider to leverage the latest #bigdataanalytics & #AI-based predictive systems available for the telecom sector. The new traffic plateau will remain. ISP should review their capacity planning and provisioning models and consider the latest big data & AI-based analytics for the telecom sector to better satisfy the future demand.
Dedicated data networks Many wholesale providers still operate legacy data networks (e.g. based on leased lines, MPLS, Ethernet) to serve their corporate customers and their international offices. These reliable and secure connections dramatically demonstrated their disadvantages at the beginning of the Covid-19 pandemic: the complex, costly and inflexible technologies were not designed to support the millions of employees working from home from one day to the other. Only the recent progress in private broadband internet access of the homeworkers - combined with virtual co-working tools like Zoom, Teams or Teamviewer - were able to keep many companies productive.
In exchange, providers offering flexible, agile and cost-efficient #SDWAN networks, with integrated security to their customers were able to to accommodate their customers’ changing requirements within hours. SD-WAN can even be extended to commodity broadband like cable, fibre or even 4G/5G mobile connections. Based on the continued trend to virtual offices/meetings, data network providers and corporates should migrate to either secured Broadband Access or SD-WAN in order to maintain a best level of agility.
Terrestrial and sea cable fibre backbone Terrestrial and sea cable backbone capacity wholesalers are currently experiencing unknown growth rates, too. This crisis shows the weakness of over-reliance on a just-in-time model for capacity, so some OTTs might be pushed into more self-supply. Sea cables like the Facebook and operator consortium funded ‘2Africa’ embrace the great potential and needs of the African markets. In the pandemic, the industry has also seen faster upgrades to other emerging markets routes, e.g. by Telecom Italia Sparkle on Google’s Curie subsea cable to Santiago de Chile. Only in the last few years, new players with different business models than Telecom operators have started to invest in long-term infrastructure. Through this, they are able to secure their business on independent infrastructure. These new players also have created new options. Local operators who wish to to leverage this increased competition should also invest into intelligent systems to fully benefit from the dynamic market conditions. Backbone providers need to take a long-term approach for a global fibre backbone. Local operators can benefit from increased competition caused by new players.
Data Centres & Asset Management Already before the pandemic, some #datacenter providers have faced challenges to grow their capacity in terms of computing, storage and physical size – especially when it came to find appropriate real estate for new data centres in hot spots like London, Paris or Frankfurt area. New concepts for commercial real estate brokerage are able to address this shortfall: by creating a new level of transparency and efficiency, integrating relevant search criteria (like energy, fibre availability, no air traffic risks, etc) and a long-term vison. Such dedicated marketplace is able to pool the needs specific of companies and (often public) landlords. Smart ventures are currently preparing their market entry and are looking for friendly customers. In addition, data centre providers should consider innovative sustainable business and operation models for their post Covid-19 growth. A next-generation space saving data centre in Frankfurt has clearly proved that a combination of air and water cooling plus heat recovering pays off: significant reduction in space needed, 70% less cooling energy consumption, thereof 98% recovering for office heating, 710 tons CO2 saving of the CO2 footprint. Many global cities are working on their climate targets in line with the UN sustainable development goals #sdgs. They which will also apply to data centres. Providers need to embrace such #sustainable ideally carbon-free concepts now to maintain a good position in the decision process for real estate of Municipalities. Regarding the mobile tower segment, the trend towards network sharing will be accelerated. Regulators should take a more relaxed view of mobile network sharing agreements to support economic health of the ICT sector. This will open new opportunities for wholesale tower companies as we see already in many markets. Continued data growth, the lack of land and the overall importance of climate targets set challenges for data centre and mobile tower providers. This requires new approaches for commercial real estate matchmaking and low-space sustainable solutions.
FTTB Infrastructure Research institutes report fibre-to-the-premises (FTTP, including #ftth) capex to fall in 2020 because lockdowns constrain network build and supply-chain disruption. On the other hand, huge infrastructure funds feel reassured by the huge traffic demand on residential fibre networks, and more than ever will consider fibre as a safe investment. At the same time, many Governments and the EU will launch programmes (the EU quantified her overall ambition at 1 bn Euro). The target is to stimulate both, economic growth and fibre coverage especially in suburban and rural regions. This combined private and public capital will accelerate FTTB capex by the end of 2020 with 2021 overcompensating the loss in 2020. This should apply especially for ‘less developed countries’ in terms of FTTP-coverage: in Europe Belgium (1%), the UK (2.3%), Austria (2.7%) and Germany (3.6%) drastically lagged behind the OECD average of 26,8% in Q/2019. Furthermore, the Regulator should now set a clear framework that encourages new models of cooperation, including existing infrastructure and combining it in an efficient socially beneficial way with the new private and public capital. Based on the experiences in best covered countries like Sweden for example, #OpenAccess should be the macroeconomic target scenario. The regulatory environment needs to encourage new models of cooperation, combining existing infrastructure with new private equity capital and public funding. This should be an opportunity for new wholesale players and end customers.
Voice, Messaging & Roaming According to Analysis Mason Research, international roaming is expected to decline by over 80% during lockdowns, and will not fully recover in 2021 because of a prolonged slump in international travel. The value of roaming will further shift towards Internet of Things #IoT. In exchange, Voice traffic is up by around 50% during lockdowns, and they expect interconnect revenue to rise by 15% in 2020 and to return to normal in 2021. (Mobile) Service Providers should review their value chains and underlying IT systems. Without major changes of existing architecture, state-of-the-art integrated AI-based solutions are able to unleash significant value: intelligent roaming management, fraud avoidance or network acceptance tests & operations systems assure both, process accuracy and sufficient time for internal experts to focus on customer and value-generating activities. As a general recommendation over all segments, the alignment with a revised strategy, objectives, re- allocation of budgets and re-prioritization of projects should be steered through a lean first-class project portfolio management software. Finally, the industry should intensify its efforts to overcome legacy billing systems and move towards a #Blockchain-based accounting for interconnection voice, messaging and roaming. The voice and messaging sector will continue to face challenges. Thoughtful regulations, consequent end-to-end digitalisation and support of independent industry experts are able to assure a clear focus and continued success. All kind of (wholesale) operators and other technology companies could benefit from a special opportunity to fund further investments but also to improve cash and profitability at short term: significant widely underutilized domestic R&D tax credits. With a view to the recent French-German initiative of 500 bn. Euro funding, we expect that Governments’ and EU programs will further support this as part of their economic recovery plans. Leading specialized companies might offer free audits on an attractive risk reward model. To sum up, interconnection & wholesale providers currently might be tempted to take short-term advantage of the current crisis as operators and their clients need telecom services. Instead, we recommend to define and follow a sustainable plan in order to leave the crisis stronger than ever and their competitors: · Develop trusted customer/partner relationships
· Review existing business models, key processes and tax policies
· Leverage experts’ advice and specialised integrated systems
· Take individual strategic choices within the next three months
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Piero Irrera is an independent advisor specialized in the ICT Interconnection & Wholesale business. He is a seasoned industry thought leader, founder and owner of CONNECTO Consulting, Partner at CAMBRIDGE MANAGEMENT CONSULTING and Associate Partner at SOLUTIONHEADS - #solutionheads