Given the significant transformation in the telecommunications industry and the reduction in both top line revenues and margins, I would like to present the top 10 challenges for Service Providers (SPs) going into 2014. I will follow this up with some suggested solutions in my next blog, including how to address these problems, increase reserves and free up some much needed cash.
1) Network Security: Service providers are seeing significant strains on their networks from malicious malware, Distributed Denial of Service (DDoS) attacks and Advanced Persistent Threats (APTs). Large amounts of time, cash and resources are being invested to address security on their networks. The increase and sophistication of attacks has surpassed the ability of current security solutions to keep up, thereby creating significant network challenges for SPs.
2) Network Congestion: How do you plan for capacity when mobility induces temporary congestion and network traffic spikes with little warning? It is all about network coverage – when you combine that with the balance sheet of the company the SP with highest network pop coverage will be the biggest winner.
3) All-You-Can-Eat Connectivity Services: Good for content providers, but bad for SPs. OTT players are increasing bandwidth at a rapid pace. Service providers can use the analytical data to extract knowledge and use that data to gain additional top line revenue.
4) Peer-to-Peer Traffic: It’s growing fast, but there is no business model in sight to monetize peer-to-peer traffic. This puts a significant strain on the service provider network and will drive higher capex, impacting cash flow and reserves.
5) Over-the-Top Video: Service providers see their networks being drained by this kind of traffic. Video-on-demand delivery is using up large amounts of bandwidth with no returns. The business model for OTT players needs to be optimized for revenues. Allowing companies that produce video with no care for its distribution will not scale and is already causing significant issues across networks.
6)Flat ARPU: There is a significant discrepancy between the growth requirements and the capex requirements to support 50% growth year over year. Add in Smart TV and IOT, and capex becomes a major factor in scaling platforms for higher revenue.
7) IPv6: This is a massive “must do” with no incremental revenue attached. Many customers are beginning to demand IPv6 but the business case is lacking. It will be very challenging for any SP CFO or CIO to view this as a cost of doing business considering the costs involved.
8) Regulations: Net neutrality is hampering a packet monetization solution that could make service provider traffic more profitable. I just don’t see a pay as you go business model being allowed by the regulators.
9) The Inability to Monetize Packet Traffic: Service providers are living with low-margin “dumb”-pipe revenues while Google and others are gaining high-margin traffic via over-the-top applications. This isn’t sustainable for SPs, especially on wireless networks where spectrum is constrained.
10) Customer Churn: When customers aren’t happy, they churn. When they churn, service providers lose money. As churn goes down with customer loyalty and satisfaction, revenue should go up and costs should come down as well balancing nice top line revenue along with superlative margin.