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Embrace experimental next-gen network services to increase revenue

As network connections revenue declines, next-gen network services that deliver a user experience can transform the business. Note to operators: Missing this opportunity is not optional.

For almost a decade, operators have used the term transformation to describe their shift from the public-utility or regulated-monopoly business model to a model suitable for the internet age. In the past, the revenue engine for operators was the connection itself, with billed time and data usage charges. Now, with usage-insensitive pricing for wireline and a complex set of data usage plans for mobile, it's not always clear what's generating revenue -- except that the answer is always services of some sort.

But what sorts of services will generate revenue in the transformed future of the network operator?

Broadly speaking, services can be classified as connection-based or experiential. Connection services provide the ability to communicate between two network entities, while next-gen network services deliver an experience to one or more network users, rather than providing them with only a network connection. The internet has changed connection services and has actually created next-gen network services of an experiential nature. But the revenue question is really one of how network operators will participate in these two service categories in the future.

Connection services won't save the business

Two decades ago, it would have cost almost $10,000 a month to get a data connection as fast as today's baseline internet wireline connections. Yet, the internet has pushed down revenue per bit transported so sharply that operators widely believe connection services will have a negative return on investment before the end of the decade.

To slow the convergence of cost and price, operators have worked hard to cut Capex and reduce operations costs. This has already shifted services away from leased lines and stringent service-level agreements (SLAs) to packet services like VPNs and more laissez-faire SLAs. Over the next three to five years, we'll see even business services come with less-stringent SLAs in order to lower prices. In their place, premiums for advanced SLAs will begin to grow.

Service automation -- including both software management of services and networks and customer self-care and service management portals -- will become the norm for all connection services. In the consumer space, it's already common in some industries to pay for access through a customer support representative. Within five years, this trend will be common in network services, as well. Portals will rule customer support and mobile portals, in particular, because mobile phones are ubiquitous companions of both workers and consumers.

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Opportunities between connection and next-gen network service experiences

If network operators can't make money with connections, what should they do? While the same internet that drove down revenue per bit established services that offer experiences that users or advertisers would pay for, most operators are reluctant to jump into experiential services as their future revenue driver. Some have looked instead at managed services that offer premium support, as well as connection-point features like firewalls, VPNs and facilities management.

Mobile broadband is the future of operator revenue, though not so much in the form of revenue from the services themselves.

The challenge for operators is to provide these features without increasing their own costs so much that no customer charge could generate enough for an operator profit. One strategy operators are now adopting is called virtual customer premises equipment (vCPE), a reference to an application of network functions virtualization, where devices can be created by chaining functions hosted in the cloud. In current applications of vCPE, if there is no pervasive carrier cloud to host in, vCPE is usually supported by a general-purpose appliance on the premises that loads the features a user wants on demand. This is then linked to a portal.

Another emerging option is software-defined WAN (SD-WAN). Originally popular as a means of creating VPNs fully or partially overlaid on the internet, SD-WAN services are increasingly seen as a way to provide lower-cost business connectivity that can be easily combined with customer self-care, managed services and connection-point features. Currently, SD-WANs are primarily offered by over-the-top (OTT) providers, but within five years, they'll be a common service of facility carriers, as well. SD-WANs may account for a fifth of all service terminations by then.

Enter experiential next-gen network services

While operators are slow to commit to experiential services, they realize the future likely demands they play a more important role there. As an example, some operators that own content themselves are already decoupling mobile content delivery from data charges, and regulators are looking at other measures that would lower net-neutrality barriers to paid traffic prioritization. Mobile content hosting via operator-owned content delivery networks is a likely response by operators and content providers seeking to counter all-in-one competitors.

Mobile broadband is the future of operator revenue, though not so much in the form of revenue from the services themselves. Competition will continue to erode profits on mobile connectivity, as it will for all forms of connection services. Mobility opens other doors, however, because a smartphone is as much a companion as it is an appliance. With voice input and response more common, it's hard not to think of your phone as an alter ego. This opens enormous opportunities to personalize services by building in more understanding of what phone users are thinking in the context of their lives when they initiate or receive communications or services.

Advertising and experiences are both logically contextual in nature -- with optimization dependent on where mobile users are currently and where they are going next, what their current and recent social connections are, what they've been looking for and more. This kind of information has to be amassed from many sources, including the internet of things, and the cost of deploying and managing the sensors needed to gather it are considerable -- too large to be duplicated across a host of competitive providers. It makes sense to assume current network operators could capitalize deployment and sell services to others.

Network operators may be reluctant to get into this new market area, but they have to face the fact that much of the contextual data they could provide could also be offered by OTTs, especially companies like Google and Apple that have a large population of mobile devices to exploit. Operators have long complained that OTTs disintermediated them from consumers in next-gen services that emphasized user experiences. They can hardly hope for a better outcome if they do nothing with the new wave of services coming along.

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This was last published in March 2017

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