Software key to telco big data profits

Telcos will enter 2014 in bad shape. Their costs are rising as they invest in high-speed broadband networks, and their core revenues are falling as voice, messaging and internet access revenues pass their peak. They are destined for terminal decline unless they latch onto an emerging technology cycle and grow with it. Put simply, they need to become software companies to survive.

 

Two emerging technologies that could dramatically change the fortunes of telcos in 2014 are big data and software defined networks.

 

Big data refers to data that cannot be analyzed on a traditional database. This data is created from hundreds of sources, including emails, documents, apps, pictures, videos, tweets, and credit card data. Much of it is unstructured, which means it cannot be easily compartmentalized by field. This makes it difficult to analyze because it depends on a machine interpreting nuances that only humans can truly understand. The big money lies in developing big-data analytics engines that can reliably interpret these nuances in real time.

 

What is interesting is that the big internet champions like Facebook and Google straddle the entire big data value chain: they collect raw data on an industrial scale, they analyze it and they commercialize it.

 

By contrast telcos are instrumental only in collection of big data. They are less good at analyzing and selling it. In a sense, they sell the raw material, leaving someone else to add the most value to it. To profit from big data, telcos need to invest more in software.

 

SDN is another technology cycle that telcos can latch on to. SDN is a new architecture for telecom networks in which the emphasis shifts from hardware to software. It transfers the intelligence currently held in a network equipment box to a software layer, enabling the network to be centrally controlled and programmed.

 

Many telcos are officially bullish about SDN because it has the potential to improve the quality of network services while lowering capital expenditures. But to really profit from SDN technology, telcos need to invest heavily in software engineering to design the applications that will run on these new networks.

 

However, there is a problem. SDN technology is classified as network infrastructure, which means it falls under the remit of the regulator. If regulators prevent telcos from profiting from their SDN infrastructure investments, then it will be industry outsiders that profit more from SDN technology. These external beneficiaries will probably include cloud software companies like Facebook, Google, Netflix and Salesforce, which will be able to program networks to enhance their web services.

 

Therefore, telcos in 2014 need to change their business models, keeping two things in mind. First, they need to move toward software services. And second, they need to restructure their businesses so that their new products and services are not regulated.