How the Telecom Industry Can Regain Its Innovative Edge

The great gift of technologies such as cloud computing and AI is that they democratize technology and make it available to everyone. With the promise of AI, we may be entering yet anothergolden age of innovation. If the telecommunications industry would like to take part in this, however, big changes areneeded. It’stime to rewire the industry’s mindset to focus on innovation, platforms, and automation tools – most of which arecoming out of the startup market.

History of Innovation in Telecom

It’s not as if the telecom industry has no experience with innovation. The industry has hundreds of years of association with entrepreneurs — from the Swiss physicist Georges Lesage who built one of the first electrostatic telegraphs, to Alexander Graham Bell who received the first patent for the telephone, which formed the basis for AT&T.

Partnering with startups and innovators, the telecommunications industry was able to tap into many decades of high growth when new markets emerged. The modern semiconductor technology gave birth to packet-switched computer networks, the Internet, and cellular telephony. Data networks including the Internet fueled a boom in business communications. The telecommunications and Internet boom of the 1990s and early 2000s was quickly followed by the explosion in mobile technology, enabled by a massive expansion of cellular networks – from approximately 1 billion connections in 2013 to a more recent number approaching 6 billion. The global telecommunications market was recently estimated to be approaching $2 trillion.

If one were to sum up what fueled all this growth, it really is one thing: technological innovation enabled new services, much of it coming from startups. Early data networks were fueled by innovation coming out of startups such as Cisco Systems, Bay Networks, and 3Com. Later, Internet-based technology startups dominated the world for communications apps. Cisco purchased WebEx for $3.2 billion in 2007. Microsoft purchased Skype, one of the first IP-based video companies, for $8.5 billion in 2011.

Startups often move faster and are less cautious than established companies (“move fast and break things”). In many cases, established companies are also less likely to challenge their own business models, for fear of cannibalization.

Innovation Now

But what now? Despite the sizable installed base of both landlines and cellular lines, the telecommunications industry is currently growth-challenged.

In the past several years, operators focused on innovation that will enable them to improve their profitability, mainly by creating new services that can generate new revenue streams. However, most of these efforts ended up with service providers adopting the same types of services and reselling the same set of vendor solutions, with little differentiation and at low margins. They generated high revenue streams, but their profitability continued to decline.

The math here is simple – if new services do not increase profitability, lowering costs is the next option. The arrival of advanced technologies such as cloud-native platforms and AI, opened an opportunity for telecommunications companies to modernize their infrastructure, simplify the network architecture and streamline their operations, all of which will lower cost, like today’s cloud platforms. In other words – building billions of dollars of new infrastructure, and with the same architecture is no longer the answer – innovating new ways to modernize it will.

Time for a Big Reset

To regain their edge, telecom companies need to focus on technology innovation from startups with a cloud heritage. Most of the mistakes they have made in the past ten years come from working with incumbent vendors, rather than looking to adopt innovations and learn from other markets. It’s clear that most service providers are also dissatisfied with their current vendors, so why do they continue to rely on them?

Here are three areas of focus to regain innovation:

• Software-based solutions speed up innovation. Service providers need to build more modern platforms, decouple hardware and software and can quickly deliver new features and service capabilities in software.
• Open flexible architecture – telecoms are typically constrained by the vendor solution they chose. They are typically limited to specific hardware, operational model, and optical solutions, which also limit their ability to re-negotiate pricing as technology costs go down. They end up paying more for older equipment than they would have for the new one. Moving to open disaggregated architecture will allow them to replace every element of the solution whenever they want or mix-and-match elements from different vendors, keeping their vendors honest and their costs down.
• Automation and agility – because of the scale needed, traditional infrastructure and operations no longer work. The industry will need to adopt more agile methods such as DevOps and NetDevOps models that have been used to scale cloud, automation, and AI Ops.

It’s time to invest in an innovative infrastructure. Telecom companies have enormous resources, technical skills, and capital, but they have lost some of their innovative spark. It is time to activate it again.

By partnering with startups such as DriveNets, telecom companies can both lower their cost and drive innovation, as it becomes clear that the old way of doing things may not support the next wave of growth.