This Industry Viewpoint was authored by Jeff Smith, Strategy & Marketing Director, Interxion
Here in the waking hours of 2015, the networking community is facing fundamental questions – the kind that trace back to its very foundation.
New technologies have swept in and forced telecommunications providers to determine how they fit in with their legacy offerings. End users are demanding more comprehensive, high-quality services, and they'll seek out providers’ competitors if their expectations aren't met. As a result telcos are reshaping their entire business models.
So how will the connectivity environment change in 2015, and how will telcos respond? Here's what to expect:
- SDN will gain prominence, but bring technological and cultural challenges
Software-defined networking (SDN) has been teetering between "next big thing" and "work in progress" for years now. While SDN has enabled some large carriers to add new services, there are still two clear barriers precluding widespread adoption – the extent of the technological changes themselves and the subsequent cultural impact on the networking community – both of which have associated monetary challenges. How will telcos overcome these obstacles?
First, carriers must consider the cost of enabling SDN, whether they add a new layer of technology or replace the structure they already have. This step can be problematic because telcos are often deeply siloed, by everything from their product groups to their technologies and systems, making it difficult to integrate such a disruptive technology as SDN. Fortunately, software today is smart enough to run across the top of these disparate layers, but getting to this point often involves challenges in itself.
One of those challenges is the cultural shift that carriers must reconcile as they embrace this new technology. SDNs will open telcos up to various new services, including those that are bundled, customizable, on-demand and customer-centric – all a far cry from their traditional, commoditized offerings. This in turn will surface new legal and contractual questions that telcos aren’t used to dealing with, as well as introduce new questions around how they monetize these services. However, by moving away from their traditional, commoditized services, telcos will be able to generate new revenue, as well as augment existing revenue streams, through additional offerings and new customers.
- Mergers and acquisitions will continue in the European market
Last year, mergers and acquisitions in the telecommunications market reached highs not seen since 2007 – in the first nine months of 2014 alone, M&A activity topped the $2.8 trillion mark. In 2015 and 2016, the telco market will continue this consolidation, with Europe at the epicenter.
One of the reasons for the vast number of M&As is service providers’ desire to capture all four service aspects of the consumer market – voice, mobile, broadband, and television and video content. Service providers are going in every direction, depending on where they see holes in their offerings – telcos are buying TV and content services, while mobile operators are buying content. In the eyes of customers, any service provider that owns all four elements will offer them more flexibility and a better overall experience. We’ve already seen the provision of quad-play by incumbent carriers through BT's pending acquisition of EE and other examples.
Mergers and acquisitions also allow telcos to accomplish another goal – establishing a presence in new markets. By having a presence in new markets, telcos are better able to serve a global base of enterprise customers, as well as open up additional revenue streams. In 2015 these acquisitions will focus on companies that serve the European market. While markets like Africa and some areas of Asia may seem like attractive expansion targets because they’re flush with potential new subscribers, they also bring high volatility – in the form of uncertain political and economic stability – that gives acquiring carriers pause. Acquisitions in the EU are seen as low-risk, "safe bet" gateways into those new markets, as they can service new markets in Africa and Asia via a place of relative stability.
- CDN services will differentiate and grow to meet customer expectations
Content delivery networks (CDNs) will be changing too, by refocusing their efforts on improving customer service to provide more value-add, both to carriers and their customers.
Content delivery networks have always been about getting content as close to the customer as possible, as quickly as possible. They now need to take customer service to a new level by finding a way to better differentiate themselves from their competitors and their commoditized offerings. This could be accomplished through various initiatives including expanding their offerings to include more robust services, from reporting and analytics to self-service, or continuing to invest in infrastructure updates to properly support the predicted demand from new 4G and 5G network standards. As consumers become more accustomed to these networks, they’ll demand a higher volume of content, and at an even faster pace. At that point, it will be up to CDNs to continue to meet their demands.
The Path Forward
As the telco community confronts these challenges, service providers will continue to rely on data centers to work their way through this changing landscape. Not only do data centers serve as single points of investment that allow carriers to connect with all of the connectivity and content players they need to meet customer demand, their comprehensive knowledge of the networking world makes them excellent sources of analysis and advice.
Even as changes swirl around telcos in 2015, data centers will remain the constant force that helps them embrace new circumstances.