What's a Telco to do?

By Keith Willetts, Chairman and CEO, TM Forum

If you're a communications service provider (CSP) trying to make it in today's world, no one has to tell you it isn't easy. Just a couple of decades ago, telcos were king; they had their monopolies and if you didn't like how they did business or if their service was terrible, well tough luck!

All that changed in the 1980s with the breakup of AT&T and the rise of the CLECs and other alternative service providers. We can argue back and forth whether deregulation was a good thing or if it horribly mucked things up for the communications industry, but the ramifications of the major change for the telcos is still being felt today over 25 years later.

One such impact to CSPs is having to look in the rear view mirror at the competition while keeping one eye on the road ahead to make sure they are adopting the latest technology and doing all they can to hang onto existing customers and make progress on gaining new ones. But then something like the iPhone has to come along and throw a gigantic wrench into the operation.

As hot a device as the iPhone is, it was really just a drop in the bucket. iPhones, other smart phones and now tablet computers like the new iPad are all putting severe strain on operators' already-extended networks. AT&T customers in big cities are constantly complaining about really poor 3G service, so you can imagine that as prices come down on mobile data devices and they get into more hands, this situation will only get worse. That is unless the telcos are willing to make the hard choices needed to survive.

The bandwidth crunch
Over the next year or two, the demand for mobile network bandwidth will be absolutely unstoppable and will be like a runaway train. With this accelerating bandwidth crunch, operators have gone from the theoretical discussion of maybe one day reducing their cost base to really doing it or risking serious consequences.

A recent IDC survey shows only a 1.8 percent increase in telecom revenues for 2010. And as we all know, China and India are growing by leaps and bounds, so that small percentage increase really means that many markets are actually in decline. We know fixed-line hasn't been doing well, and mobile revenues are flat or declining, too. So we're at the point where taking costs out of the business--something I've been espousing for a while under the term "lean operator"--is no longer an option.

In addition to driving out costs, providers need to spend serious cash to upgrade their infrastructures to accommodate all the devices that will want lightning-fast speeds. So operators will need to upgrade their network infrastructures, but even that is not enough. They will also have to look into automating a lot of their processes and rationalizing and simplifying a lot of the back end. The delicate balance between process automation and spending every spare cent on the network won't be an easy one, but if operators consider outsourcing or other creating methods, they have a fighting chance.

Just recently in the UK, O2 announced it would move its network operations to BT's 21C network. This would cover both fixed-line and mobile traffic, which is a pretty significant outsourcing project. Also in the UK, Vodafone and T-Mobile have agreed to network share; and in Australia, Vodafone and 3 have some to the same agreement.

Operators are taking drastic measures to cope with the massive increase in bandwidth demand, flat revenues and a non-existent cavalry coming over the hill to save the day. It's going to be an interesting rollercoaster ride, especially as LTE joins the mix. Verizon, Vodafone and a number of other providers will be rolling out 4G by the end of next year, and by the middle of 2011 we'll be swimming in bandwidth.

But in what ought to be a golden future for providers--where mobile devices are driving their core product: the network--they can't just go out to the market and say they are increasing their network capacity and now you have to pay accordingly. Consumers will simply move onto the next service provider.

Bandwidth alone won't solve today's telco woes. But the combination of increased bandwidth, lower operating costs, automating and simplifying processes and other lean measures is a good start to getting operators back on track.

Keith Willetts is a regular FierceTelecom columnist and Chairman and CEO of the TM Forum. If you want more information about the TM Forum, please go to www.tmforum.org.