Most of us are familiar with the concept of total cost of ownership, or TCO. But I would submit that the total value of ownership (TVO) is a far more relevant metric when weighing the investment of 5G digital transformation. A more relevant metric is needed because 5G transformation is so different from the network transformations of the past, both in terms of what it requires and what it can achieve.
Digital transformation 1.0 centered mostly on CapEx reduction through virtualization. The goal was to decouple the hardware from the software to give telco operators more flexibility and efficiency in how they deployed their networks as well as who they partnered with to deploy them. While this first wave of digital transformation did reduce costs, it didn’t present many opportunities for new revenue creation.
With 5G, the second wave of digital transformation arrives, bringing with it cloud and cloud-native technologies that not only reduce costs, but also reduce operational complexity and accelerate time-to-market for new services. Just as webscale companies like Facebook and Netflix have done with their cloud networks, telco operators can now turn their network into a competitive differentiator and an agile platform for new services.
5 Metrics for 5G Transformation
Pervasive improvements require pervasive change. While bringing cloud and cloud-native technologies to the network is an important part of the 5G transformation, it is just one part of a broader telco transformation that needs to take place. There are, in fact, five areas of transformation that telcos need to consider in order to ensure that they maximize the value of their 5G investment.
- Network Architecture
- Hybrid Coexistence and Joint Operation
- Business Organization
- Network Automation
- Business Model
1. Network Architecture
Migrating from a virtualized infrastructure to a cloud-based infrastructure is the first step in transforming the network for 5G, but not the final step. The goal for operators should be a cloud-native architecture that can support the rapid creation of new services and take advantage of orchestration efficiencies through containers and Kubernetes.
2. Hybrid Coexistence and Joint Operation
It goes without saying that 5G digital transformation for most operators will be an iterative process that could take anywhere from five to ten years to complete. During that time, operators will need to run existing 4G and 5G networks concurrently – across private and public cloud deployment environments in a hybrid mode. Seamless joint operation and co-existence is key to ensuring strong revenue pipelines “status quo” business can continue while the migration to a value business happens overtime.
3. Business Organization
5G is more than a network transformation; it’s a business transformation. Telcos need to re-align their business, and especially their network management teams, to adapt to the changes that 5G will bring to their networks. At Affirmed, we spend a lot of our time with telcos discussing how best to re-organize procurement, technology planning, engineering, network support, and other teams to thrive in a 5G environment.
4. Network Automation
Where 4G transformation was more of a CapEx reduction play, 5G transformation is about both CapEx and OpEx reduction. With a cloud-native architecture, telcos can run their networks in a fully automated fashion. Automation opens the door to lower OpEx costs and, importantly, much faster and more agile service creation.
5 . Business Model
For years, telco investment models have been CapEx-oriented with long-term ROI projections. At the same time, telcos have been regulated in what they can charge for services, which means they’ve had to squeeze OpEx costs to increase margins. As telcos move to the cloud, however, CapEx investments are replaced by a subscription-based model. This fundamentally changes the business model and requires telcos to shift their revenue models accordingly.
It’s a lot to think about 5G transformation, which is why I’ll be breaking down these key considerations in greater detail with an upcoming blog series on 5G digital transformation, 2.0 and beyond. 5G and the cloud are here to stay, so stay tuned here for more on this industry-changing transformation.