|Issue:||Asia-Pacific I 2002|
|Topic:||Winning in a tough market|
|Author:||Thomas (Tom) White|
|Title:||Senior Vice President and General Manager|
|Organisation:||Communications Solutions Group|
Telecommunications service providers are facing excess capacity, competitive pricing and cash flow problems. Traffic grows, but so do costs. Price cutting has cut income and cash flow and profits shrink or disappear. The ensuing drops in capital expenditures buffet equipment suppliers. Service Providers hope to reduce costs through increased automation and reduced manpower. Many believe that Operational Support Systems (OSS) can deliver the types of dramatic operational cost reductions required and provide the flexibility they need to face the market.
Globally, the telecommunications environment remains tough. .Though Service Providers in Asia have not been as badly affected as elsewhere, they still face the same challenges. With Service Providers facing excess capacity and competitive pricing, many are experiencing cash flow problems and falling profits. Indeed, a large number of service providers in the US and Europe have already gone out of business and its likely there will be other casualties. What has happened in the telecommunications market over the past eighteen months to bring about this dramatic change in fortunes? What went wrong? Based on the most recent industry growth numbers, you might start to question why the current downturn exists. Look at the continued growth of the Internet. For example, in the past 12 month, the number of computers connected to the Internet has increased by nearly 40% to around 137 million. China is now the second biggest Internet population – but the 56.6 million users represents only 0.3% of the Chinese population. By the end of 2001, it was estimated there were 36 million Websites and 3 billion documents available on-line. The volume of data traffic continues to grow dramatically and is now being fueled by the explosive growth in broadband connections – the bandwidth consumed by 1 million broadband users is equal to the bandwidth consumed by 20 million dial-up customers. Asia is currently the largest collective broadband market in the world with over 8.4 million users at the end of 2001. Korea is the broadband hotspot, but there is now strong growth in Hong Kong, Japan and Malaysia as well. In wireless, whilst subscriber growth has slowed from previous years and 2.5 and 3G deployment has been delayed, there is still optimism for the future of wireless. In Asia, at the end of 2001 there were 226 million wireless subscribers, up from 134 million at the end of 2002. And you only need to look at the success of I-Mode in Japan to understand that when a service provider delivers a high-quality service at the right price, then customers will adopt the technology. In summary, we are all using our phones more, reading and sending more e-mail and downloading more and more documents from the Internet, therefore clearly the underlying fundamentals of communications appear to be in good shape. The fundamental problem causing the severe turmoil in the industry is illustrated in Figure 1. Figure 1 – Service Provider Business Model As can be seen from the above, traffic has grown dramatically but costs have grown quickly as service providers ramped up their capital expenditure to build huge capacity optical networks for example. The real problem is that the revenue from the increased traffic has not grown to keep pace with the traffic or investment costs. Another way to look at this is that we simply have had a case of supply outstripping demand (excess network capacity) leading to a price war amongst the service providers. For the service providers, this led ultimately to severe cash flow problems, a near freeze on capital expenditure and in many cases bankruptcy. The dramatic reduction in capital expenditure is causing severe business and financial problems for many network equipment suppliers. CAPEX is only a short term fix While a reduction or freeze in capital expenditure (capex) can help in the short term, it is not a long-term fix for the service providers. Many service providers are now realizing that to stay competitive and to eventually return to a positive cash flow situation, they need to evaluate and modify their entire operational model. And what is equally clear is that the wholesale changes and operational efficiencies required cannot simply come from headcount reductions alone. Service providers now realize, to address the problem, they need to execute programs that will redefine the methods and processes they use to operate their business, ultimately leading to reductions in their overall operating expenses. Although deploying new services is still a priority, reducing operating expenses is a more urgent priority since every dollar saved goes straight to free cash flow, whereas with each new dollar of revenue, only 20 cents goes to free cash flow. Reducing Operational Expenses To reduce operating expense, Service Providers clearly need to consider higher levels of automation and reduced manpower levels. They will also need highly flexible infrastructures that will allow them to react quickly to competitive threats. Many service providers believe that Operational Support Systems (OSS) can deliver the types of dramatic operational cost reductions required and at the same time give them the flexibility required in today’s dynamic markets. It is estimated that around 60% of a Service Providers Operating expenses can be directly impacted by their OSS. Moreover, in many situations, these OSS solutions can deliver dramatic results in a short period of time reducing expenses and opening up new, untapped, revenue streams. Figure 2 shows some examples of this. OSSs – what they are and what they do OSS describes the systems that service providers use to do everything from activating a new customer to billing for the services these customers use, to ensuring that customers receive high quality services. The number of OSS solutions deployed by service providers has grown as their networks and services have evolved. In fact, most service providers have many hundreds of OSSs to support their day-to-day activities. Most existing OSSs are point solutions that deal only with specific problems. More often than not, they do not interact with other systems and come from a wide range of sources A typical legacy OSS is shown in Figure 3. As new generation networks evolve and add new layers of complexity, service providers have come to realise this unintegrated approach is clearly not sustainable and that existing OSSs are too inflexible, complex and expensive to integrate. Figure 3 – Nonintegrated approach to OSS Recently, OSS vendors and industry bodies have proposed pre-integrating the OSS by adding a mediation layer to reduce the number of individual connections needed to the various OSS functions. However, this does not reduce the complexity or cost of connecting to the individual network components. This is illustrated in Figure 4. Figure 4 – Preintegrated approach to OSS New generation OSS Reduces Operating Expenses Although OSS vendors have made significant changes in OSS architecture, some of the above needs have still not been met. Service Providers now realize that OSSs must have the following attributes: · Flexible architectures for rapid response to business changes · Ability to cope with changes in business processes · Rapid ROI and reduced time to revenue · Higher levels of integration · Lower cost of purchase, ownership and modification · Support for legacy networks and services Service Providers expect fully integrated OSSs (Figure 5) to dramatically reduce complexity, to facilitate additions or modifications of the OSS and permit quick – reduced cost – changes in business processes. For this to happen, OSSs need to change from today’s monolithic, inflexible, software, with millions of lines of code, to modular, flexible, component based software. The TeleManagement Forum (http://www.telemanagementworld.com/) calls these advanced OSSs the New Generation OSS (NGOSS). NGOSS provides software applications that OSS vendors, service providers or systems integrators can build, buy and integrate off-the shelf in a “plug-and-play” fashion. OSS Successes in Asia There are many examples of Service Providers in Asia that have successfully deployed OSSs and obtained major benefits and improved financial results. For example, Telecom New Zealand (TNZL) deployed an OSS system to detect and shutdown fraud on their network. The full capital costs of the system and the fraud center were recovered in five months and, in the second year of operation, operating expenses were recovered – in full – within 5 weeks. Moreover, TNZL improved its reputation and could boast about their secure network as a competitive differentiator. TransAsia Telecommunications, a leading mobile service provider in Taiwan, deployed a OSS network management system to help them manage their growing network traffic more effectively. The company substantially reduced its maintenance costs, and has maintained or improved customer satisfaction despite their greatly increased customer base. Indeed, the Directorate General of Telecommunications in Taiwan has rated them the top company for customer satisfaction on 5 consecutive occasions. Things are changing fast OSSs, gnerally speaking, have not been able to keep up with changes in the communications marketplace. Most of these systems are static, legacy, solutions that do not reflect the needs of today’s service providers. Many are inflexible, home-grown, systems, costly and difficult to adapt to changing environments. Most OSSs were built for fixed line telephone networks, whereas the growth is in wireless, DSL services and integrated voice and data solutions. It is clear that a new breed of OSS solutions is needed, providing convergence across wireline, wireless and IP technologies and integrating the network, service and business engines. Critical for the service provider is ensuring the OSSs deliver on the customer need. In many cases, carriers are driven by corporate needs, particularly in the areas of quality of service and service management. These needs are described below: · Full range of integrated services · Unified, real-time, simple billing · Pervasive access to measurable and reported service metrics · Guaranteed end to end service delivery · Reliable, robust and consistent service tailored to budget needs Fully Automated Troubleshooting Troubleshooting and maintenance of networks and services has a significant impact on service providers’ operating expenses. Each time a service technician is dispatched in a service vehicle to resolve a network problem it costs, on average, around $1500. A typical network develops hundreds or even thousands of faults and problems each working day. While many of these faults can be resolved without dispatching a service technician, more often than not, the only way to track down a fault is to physically send a technician. The problem has been exacerbated over the past few years by the growing complexity of a service providers networks and services. Whereas in the past service technicians only needed to understand a limited set of stable and mature technologies and protocols, they now need to cope with many different emerging and evolving technologies. Often, service providers are unable to hire technicians who have the broad skills required. Service Providers are looking for innovative ways to reduce the cost of troubleshooting and maintaining their networks and services. Currently, test vendors are delivering new testers that are cheaper and smarter, reducing the complexity of testing and ensuring that problems are resolved quickly with the first service call. A tester, for example, that can reduce test time by 80% can have a significant impact on workforce productivity and make a significant contribution to reducing operational expenses. Looking ahead, service providers ultimately would like to eliminate sending technicians to troubleshoot and resolve faults by using remote testing and fully automated troubleshooting solutions. If a service provider with a wireless network could remotely test and troubleshoot all of its base stations remotely, it would make an immediate, huge, impact on its bottom line. Conclusions The current downturn has had a serious impact on the industry, the underlying fundamentals of the industry are nevertheless valid. Traffic will continue to grow, but service providers will need to make substantial reductions in their operating expenses to return to profit. Adopting fully integrated OSSs and innovative test solutions for troubleshooting and maintaining networks and services can make a substantial contribution to operating expense reduction.