If Operators Outsource Networks, Do They Outsource Their Advantage?

"Now that we've outsourced the network they can't call us a dump pipe anymore!"
"Now that we've outsourced the network they can't call us a dump pipe anymore!"

Network outsourcing is a growing trend in the communications industry because it provides operators with a way to offload some of their capital burden in the face of explosive bandwidth demand. Communications providers want to move up the value chain. To some extent this means getting out of the business of building, operating, and maintaining networks in lieu of focusing on creating products and caring for customers. But in doing so, will they sacrifice an inherent competitive advantage in the digital economy?

"Now that we've outsourced the network they can't call us a dump pipe anymore!"
“Now that we’ve outsourced the network they can’t call us a dumb pipe anymore!”

“4G will shake things out,” says Keith Willets, Chairman of the TM Forum and author of Unzipping the Digital World. “Five years from now, many more operators will be doing this (outsourcing their networks); it’s the only way to keep up with the Big Data bubble,” he says.

Willetts explains that operators aren’t just looking at the cost of 4G build outs, but rather at the way accelerating technology generations are changing their traditional economic models. The question for operators is “how do I build out 4G and keep going into 5G and 6G; many will drop out,” he says. Willetts also points to examples like Everything Everywhere where operators – in this case Orange and T-Mobile – are pooling their networks together to create greater economies of scale.

“Economies of scale are everything” in the network business, Willetts says, “and network equipment manufacturers have the most.” As a result, it makes sense for NEMs to shift into the infrastructure business and provide managed network services to a variety of operators. NEMs, however, lack licenses and spectrum and, Willetts argues, it will remain up to the operators to bid for and maintain them.

But what happens when operators aren’t operating networks anymore? And what prevents companies like Google from buying licenses, spectrum, and managed network services of their own in order to control the entire value chain – networks, customers’ devices, and everything in between? Operators may give up a critical competitive advantage if they choose to avoid the capital risks involved in building out successive network generations in order to morph into companies that try to – and perhaps fail to – operate like Google.

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About Edward Finegold 122 Articles
Ed is now Director, Strategy for NetCracker. Previously, for 15 years he was a reporter, analyst and consultant focused on the OSS/BSS industry and a regular contributor to BillingViews.

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