Network function virtualisation (NFV) is the new buzzword being bandied about by IT and telecommunications vendors. Virtualisation is a well understood concept in IT, but its benefits in telecoms networks are not yet as clear cut.
The vendors are, as expected, are punting NFV because they are in the business of selling new technologies. But could NFV be the solution to wireless telecoms infrastructure consolidation in an environment where there is a greater need for collaboration among operators in order to survive the threat from over-the-top (OTT) players?
Mobile network operators (MNOs) find themselves in a catch-22 situation, wherein their consumers demand faster and smarter networks in order to consume OTT services, but MNOs are not benefitting from value-added OTT services.
As such, the market demands that MNOs should continue investing in expensive next-generation core and access networks in order to satisfy the appetite for data services or lose their customers to competitors.
However, they are unlikely to recover their investment in these new networks, at least not at the rate they’re accustomed to. This is because prices have declined significantly from about R2/MB in recent times to well below 15c/MB.
Because prices have declined, operators need the volumes and the volumes increase with faster networks. Some local operators are warming up to outmoded protectionist tactics in order to slow down the threat from OTTs, while others have embraced OTTs, albeit with no clear value proposition to the MNOs other than to win over customers.
Part of the solution to this impasse in lies in greater collaboration between operators. MNOs cannot continue along the old path where they competed on their ability to build high-quality networks alone because this is just too costly.
With four MNOs in South Africa, the investment to put up one 4G/LTE site by each operator is costly when it could actually be a quarter of the amount spent. To build a single radio access site, each MNO needs spectrum, property, electricity, battery and generator backup, a mast, antennae, backhaul access, network equipment and technicians to maintain the sites. Each of these components is bought four times by the industry and they all cost a lot of money.
It makes sense for MNOs to share common infrastructure under a consortium, to consolidate their investments for a better return on investment. This will bring about big capital and operating expenditure savings.
Consolidation is being bandied about by many leaders in the industry, but the form of consolidation proposed means the acquisition of rivals and the elimination of competition. This will raise the ire of regulators and is not a favourable outcome for consumers.
Most of the acquisitions will struggle to get past competition authorities and, where acquisitions are approved, it will be with very stringent conditions. Furthermore, most of the acquisitions will be leveraged because MNOs do not have the resources to acquire outright and this will further burden their balance sheets.
So, this is not the most desirable approach as it takes the industry back to the days of oligopolies and will lead to price hikes in the future. Furthermore, consortia are common in capital intensive industries such as telecoms, oil and gas, and mining. In telecoms, most of the international submarine cables are owned by consortia made up of operators and others investors.
The biggest stumbling blocks are the fear among some operators about their ability to differentiate their service offering, their ability to use their preferred vendors and the regulatory complexities of a consortium-type arrangement.
NFV presents a possible solution to the first two stumbling blocks and will altogether simplify a consortium-like arrangement. The current wholesale model that is used by formerly incumbent fixed-access network operators is a possible guide to regulating the consortium.
The complexities with sharing common infrastructure is that current network service functions reside in proprietary hardware and software from the various network equipment vendors. As a result, if all four operators are sharing a common site, the site needs to house four equipment vendors and four different antennae systems for the access network. This would present a logistical challenge for a consortium operator.
NFV is a European Telecoms Standardisation Institute (Etsi) architectural framework initiative to virtualise telecoms functions and services. The key benefit of virtualisation is it will move the equipment vendors from the infrastructure layer to the application layer, as such morphing them into software vendors.
As a result, an NFV-enabled network consortium would be to provide operators with network infrastructure as a service for the core and access networks and in the process allow consolidation of physical infrastructure.
The platform will enable MNOs to deploy their chosen network vendor software on top of this platform in order differentiate their service offering. This will present operators with greater speed, flexibility and scalability to service deployment termination.
It will also free operators from managing the brick-and-mortar infrastructure and focus on service development and innovation in order to compete or complement OTTs offerings.
The challenges of declining margins for operators are certainly here to stay. But the industry and regulators should guard against reverting back to protectionism and an anticompetitive industry landscape.
Rather, through collaboration, pragmatic regulations and leveraging emerging technologies, the industry can reinvent its operating models to ensure sustainability. NFV certainly presents operators with a real opportunity to achieve consolidation and sustainability without stifling competition.
- Kgaugelo Selepe writes in his personal capacity as an industry professional. He holds an MSc (Eng) from Wits and a BCom (hons) from the University of Cape Town
