OTTs were born digital, but carriers must transform and now

OTTs were born digital, but carriers must transform and now

It might be a painful process, but carriers are recognising the need to undergo digital transformation, Huawei’s Ryan Ding tells Alan Burkitt-Gray

Huawei is planning to spend $1 billion over the next three years in solutions to speed the digital transformation of telecoms carriers. The company will use the money to develop solutions and platforms that it will sell to fixed and mobile carriers worldwide, says Ryan Ding, executive director on Huawei’s board.

He was speaking on the opening day of the Chinese vendor’s annual operations transformation forum, when Huawei’s business and technology management come out in force to impress carriers from around the world. 

Ding, whose Chinese name is Ding Yun, heads Huawei’s carrier business group. “In the next three years, Huawei will invest $1 billion in digital transformation solutions,” he says. “We will continue to build solution-oriented business and technical capabilities, solution development processes, and digital business enabler platforms.” He told the conference in Hong Kong: “Digital transformation is now a common business goal. In the past few years, we used to talk about the direction and architecture of digital transformation. This year, our focus has evolved to digital business and services. This is a very encouraging change.”

Ding quotes a survey carried out by IDC for Huawei which shows that “72% of carriers believe that digitisation is a mid- to-long-term process that will take three-to-six years to complete”. 

Opportunities for carriers

The change will affect traditional voice and data services, but also enterprise IT and connectivity, video and internet of things (IoT). They “are the most important new business opportunities for carriers over the next one-to-two years”, says Ding. 

“Enterprise IT and connectivity services, video services and IoT services allow operators to give full play to their network advantages and are also well combined with digital technologies, which will boost operators’ business growth,” he adds. “Communications networks are operators’ core assets. They help operators build three major strengths: wide coverage, massive connections and centralised operations.”

One prominent customer is Deutsche Telekom, which provides on-demand private-line bandwidth for CERN, the European nuclear research organisation, in Geneva. CERN “generates the world’s fourth-largest dataset through the operation of the Large Hadron Collider every year”, says Ding.

“In 2016, it generated about 50PB [petabytes] of data.” Now “Deutsche Telekom ensures 10Gbps private line bandwidth for CERN, with more than 20TB of data transferred every day.” 

After his presentation to the conference, we meet in a side-room, away from the main auditorium. He speaks good English, but for the sake of accuracy he was accompanied by a translator. 

Let’s take a few steps back. What does he actually mean by transformation? “The scope of transformation covers many aspects,” he says: “Business, process, infrastructure and people. We’re working backwards from customers’ experience to find the gaps in those four areas.” 

Look at the key performance indicators that are set for chief technology officers, he says. “They are based on technology. They are not experience-related. This may be the biggest challenge.” He cites Hong Kong Telecom, owner of carrier PCCW Global, and its executive director and group managing director, Alex Arena. “The industry would recognise that they are showing how to transform into experience-centric carriers.”

A number of factors are driving the transformation, Ding adds. “There’s a shift from pure human connections to linking humans with things, and things with things. But the second influence is the advance of cloud computing, which will change the business model of carriers significantly.”

The company “is making significant investment in these two areas”, he says, as carriers move from voice to information. “Around the world carriers are at different phases.” In Africa, the main business is voice and SMS. “In Japan, Hong Kong and Korea we’re already at the stage of information and data dividend,” he says. 

“It’s most exciting to see [Japanese mobile operator] NTT DoCoMo succeed in recovering growth after a drop in data and voice revenue. What is happening to NTT DoCoMo will happen to other carriers in five years time. Many European carriers have started their transformation.” 

Earlier at the conference we had heard a presentation by Javier Albares, the head of corporate strategy at the GSMA. In parts of the world where penetration is high, mobile carriers are showing low or negative growth in revenue, said Albares. In most of the world it’s +2-4%; in North America it’s –2%. Only sub-Saharan Africa does well, with growth at around +7%. But traffic worldwide is hurtling up: he forecast an eightfold rise in the next five years. 

Albares contrasted the performance of what he called ecosystem players, but most still call over-the-top (OTT) providers – Google, Amazon, Facebook and Apple, plus Microsoft and Tencent. Their market capitalisation has grown significantly in recent years, from $600 billion in 2010 to $3.2 trillion now. Meanwhile, in 2010 mobile operators’ market cap was $1 trillion; today it’s just $1.3 trillion. 

Revenue tells a similar story: the OTT players are growing at 15% a year while mobile is showing –0.1% growth. 

Industry dilemma 

I ask Ding about this dilemma that is facing the industry: carriers are having to invest heavily to provide more capacity, but that capacity is being used by OTT players whose revenue is growing fast, while the carriers’ revenue is essentially flat. 

“OTTs and carriers are in two different categories,” he says. “Carriers are mostly asset-heavy and OTTs are asset-light. OTTs are ahead of carriers in digital transformation. Our industry should learn from the OTTs to accelerate the process of digitisation.” 

In some countries, he adds, carriers and OTTs have developed ways of cooperating. “In China the three carriers offer joint video packages with OTTs – China Unicom has a video package with Tencent.” Indonesian carriers arworking with Facebook on video services. 

The point is that “OTTs were created digital”, he smiles. “Most internet companies were born digital.” Other industries – banking as well as telecoms, he says – are having to start the process of digitisation. Is there an option of not going digital? “It is just a matter of timing,” says Ding. “Look at an egg: from the inside, it’s new life; from the outside, it’s a fried egg.” 

Attendance at the forum backs his assertion that the telecoms industry is becoming aware it needs to transform, he says. “Last year we had 200 attending. This year we have 400. I believe many carriers are aware of the importance of their digitisation strategy. We continue to enable carriers to start their digital transforma-tion.” Even Huawei has started to go digital. “We say: ‘Eat your own dog food.’” 

The company has developed an integrated service delivery platform, now covering more than 6,000 projects, “and we have delivered five million base stations using this platform”. There’s an integrated supply chain, “and our customer satisfaction has improved 30% compared with 2014”. Artificial intelligence (AI) has shortened the cycle time from arriving at the site by 46%. “Our inventory turnover cycle is 38% down. Carriers should engage in digital transformation to improve efficiency.” 

A job for the CEO

Whose job is it to drive transformation in a carrier? “It should start with the CEO,” says Ding. He returns to Hong Kong Telecom’s group MD, Arena: “He has a customer experience committee that meets every week. The digital transform-ation programme that started there last year would not have happened without the CEO. He had to push transformation of the organisation, the infrastructure and the talent.”

It’s the same at Vodafone, where CEO Vittorio Colao is in charge of transform-ation. “This cannot be completed without a push from the high-level leadership.”

Ding has a third hero of transform-ation: SoftBank’s founder and CEO Masayoshi Son. “He has great power. He is the most important and the primary pusher of both AI and transformation.”

And the period for payback? It varies, he says. “For video, the cost can be recovered in two to three years, but for software-defined networks the investment will have a shorter payback period.” 

I ask for a bit more about CERN, the case study he had mentioned in his talk at the forum. What did it use to transfer data before Deutsche Telekom turned up with a transformation-enabled system? The courier company DHL, he says. 

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