Is 5G a calling for telco CIOs?

CIOs will play a vital role in delivering savings and changing operational methods as telcos roll out 5G and need capex for the infrastructure investment.

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On October 13th, 2020, Apple announced the iPhone 12; a device built intentionally for 5G networks. Business technology leaders in the telecommunications sector face major challenges, but also opportunities to change the way their businesses operate as 5G becomes the latest network standard. 

Pre-pandemic, technology analyst house Gartner predicted that globally, 5G network infrastructure revenue would reach $4.2 billion in 2020. The pandemic may have delayed infrastructure rollout and therefore the revenues, but demand for increased connectivity and capacity has a habit of returning to health pretty quickly.

With 5G expected to make smart cities, factories, transport and agriculture a reality, along with remote healthcare, the pandemic will, in all likelihood, accelerate these technology megatrends. As IDG Connect recently detailed, remote care is growing across the world; and before the pandemic, the western world was struggling with productivity and considered these technologies as a solution, the supply chain shortfalls of 2020 will increase smart innovation and investment, observers believe.

"Financial services, gaming and gambling are looking at how low-latency technology can deliver new micro-services," says David Doherty, an experienced telecoms sector CIO who has led technology at the likes of NTL, Easynet, Gamma and regulatory body Ofcom.  Not only will telecom operators benefit from the adoption of 5G, in France, the state has received €2.8 billion in revenues from the sale of 5G spectrum.

"We can sense the demand in the market," says Geert Standaert, CTO at Proximus, a telecommunications provider in Belgium. "Companies want to use 5G to speed up their digital transformation. We already have various test projects running with customers, where we are using test frequencies. Generally speaking, there is little doubt about the potential success of 5G. You just have to look at the growth in the use of mobile data. It is a thousand times higher today than 10 years ago.This trend is set to continue. Video resolution, for example, keeps increasing."

The challenge for telecoms operators, and therefore their CIOs and CTOs, is that the customer demands greater capacity and services, but is rarely willing to pay more.  In a research note, advisory business McKinsey stated: "Each generation of technology opens new opportunities for telecommunications players. But when 4G launched in 2009, mobile operators didn't see the great returns they'd captured with earlier generations. Despite their investments in 4G infrastructure, revenues showed flat or tepid growth. In a few regions, including Europe and Latin America, revenues even dropped after 4G's introduction."

It is worth noting that 4G has not yet reached double figures in age, and yet telcos are considering investing in a completely new infrastructure. "5G is a totally new mobile radio technology, with new frequencies and new broadcasting and receiving apparatus.The important thing is that 5G relies on new network infrastructure with features that were not possible previously, with 4G for example," says Standaert. "Among other things, with 5G a separate, locally virtual mobile network can be installed at a specific location – such as on the premises of a company – which can only be used by the staff or the IoT applications of that company."

"The most significant transformation in 5G is the Service-Based Architecture (SBA)," says Mark Gilmour, Head of Mobile Connectivity Solutions at Colt Technology Services. "This allows the network architecture to be optimised for latency or bandwidth sensitive."

This demand means that telcos and their technology leadership will need to focus on lowering operational costs, freeing up revenue to invest in new 5G infrastructure and, more importantly, changing the culture of the organisation to be less centred on the network and more on the customer and new services. The irony, of course, being, at a time when the business is investing in a new network. 

McKinsey believes the network divisions must undergo: "a makeover that lets it shed its cost-center past to become a leading function that influences digital and analytics" adding that the network must be seen as a source of data and customer insight and not seen as a physical asset. But Doherty says that is easier said than done. "Networks are often layered and consist of parts from acquisitions, so there is a complex web to get that data from."

An added complexity, according to Doherty, is the budget available to telco technology leaders. "CIOs and CTOs are always under the cosh when it comes to capital budgets and in particular at the larger telcos, as they are rightly worried about increasing technology debt."

As a result telco CIOs are caught between a rock and a hard place, at a time when new technologies are arriving on the market which will bring artificial intelligence and automation to network operations, some may find they are unable to exploit these technologies. Yet the move to 5G will enable their customers to adopt these very technologies.

Gilmour does believe there are savings to be achieved. "We see IT savings over the long term as being one of the initial drivers for 5G network investment. You're getting a more efficient access medium for data transfer, and this is particularly relevant for new entrants into this space who won't have to build all the legacy 2G, 3G, and 4G networks to support their 5G network." 

Digitisation needs

"All of a sudden it became clear that the customer would be loyal to the device and not the network and that was a paradigm shift," reflects Phil Jordan, Group CIO of retailer Sainsburys of the arrival of the iPhone. Jordan was CIO for international network provider Vodafone in 2007 when the iPhone arrived and went on to be CIO of O2 and Group CIO of Telefonica in an 18-year career in telecoms. "The network, which is the telco's biggest asset, has become commoditised."

Doherty agrees: "All operators want to move from the utility look, but many fall down on the customer journey. You cannot rest on your laurels as the range of services and bundles the customer demands is huge. You are dealing with customers with high and moving expectations, and today they expect to be able to move seamlessly across different services you offer." The CIO adds that with 5G the customer will move from a 5G service within a factory or hospital for example and on to the wider telecoms network when they leave that building with no change in service quality. Telco CIOs will therefore need to develop excellent hand-over processes and APIs to deliver that quality of service. 

To deliver great APIs and hand-overs, telco CIOs will need to increase their data focus.  McKinsey's research says telco CIOs must consider how technology can be used to reduce the time between insight and action. Former telco CIO Jordan says the CIO role, both in retail and his former vertical market, is now all about data-driven insight. "The role of technology has changed, it is the differentiator that will disrupt the business positively." 

Doherty believes that for many telcos the data can be used to reduce costs, but revenue generation from data remains "some way off" for many telcos. 

Calling the cloud

"Telcos will have to keep moving to a cloud infrastructure in order to meet the dynamics of the new types of network services, such as network slicing," Doherty says. Cloud vendors are well aware of this, in late September Microsoft announced a telco specific Azure cloud platform, partly in response to market demand, but also pressures from the US government for telcos to have access to technologies other than Huawei of China. Microsoft has recently acquired cloud networking tech providers Affirmed Networks and Metaswitch, demonstrating its interest in getting into 5G early. Famously Microsoft was late to the mobile market and rushed into a series of late and botched buys and relationships with Nokia and others.

Being a CIO in any vertical market is tough, but telco CIOs face the major challenge of reducing costs as their market builds out its second major infrastructure investment in under a decade. But the cloud and analytical technologies enabled by their sector's previous investments provide a range of tools to both lower costs and digitally transform the operations of their organisations. Doherty concludes: "They can move away from being locked in, cloud and software can help them be more fleet of foot."