The future of customer experience: Why NFV/SDN can bring much more than just operational savings to operators

The future of customer experience: Why NFV/SDN can bring much more than just operational savings to operators

The Delta Perspective

David Abt - Senior Business Analyst
Joao Sousa - Partner
Fabian Campo - Associate Partner

Over the last 3-4 years, a lot has been written about the financial and operational advantages of network functions virtualisation (NFV) in combination with software-defined networking (SDN). Many operators have started exploring the potentials from virtual networks across different infrastructure layers. However, the actual magnitude of opportunities that the two concepts may bring to communication providers are still unknown.

First let’s recap: what are NFV/SDN; and what are the benefits for operators?

While network functions virtualisation (NFV) is an initiative to virtualise network services that are currently carried out by proprietary and dedicated hardware, software-defined networking (SDN) is an approach that allows network administrators to manage network services in a more automated and efficient way. The goal of the two concepts is to decouple network functions from dedicated hardware devices and to allow services to be hosted on virtual machines. In times when network operators are impacted by increasing traffic demands – which are not supported by corresponding revenue growth – a technology that could facilitate CAPEX/OPEX savings is most opportune. Together NFV and SDN build the next logical step in the network evolution for telcos allowing to create an intelligent network that prioritises and optimises traffic on-the-go, giving operators the chance to become more agile while guaranteeing their “premium” services.

With this in mind, the following NFV/SDN benefits (amongst others) are expected:

  • Network Total Cost of Ownership (TCO) optimisation due to CAPEX and OPEX savings
  • Improved stability and scalability, by taking advantage of the higher network uniformity
  • Optimised network configuration, by monitoring/adjusting traffic patterns in real-time
  • Increased time-to-market / innovation due to “open” virtualised technologies
  • Reduced vendor dependency as equipment can operate on different vendor platforms

Although the list of potential benefits continues, most of the discussions around NFV/SDN appear to focus purely on the financial improvements in terms of CAPEX and OPEX savings. However, it is important to understand the addressable base for the potential savings. While headlines of press releases from operators and vendors claim remarkable CAPEX/OPEX reductions, these savings only apply to a small part of the overall expenditures. The majority of investments in physical infrastructure (e.g. mobile towers, backhaul and transport transmission, etc.), as well as field operations and maintenance, are not directly impacted by the deployment of NFV/SDN. The addressable CAPEX/OPEX that could be the subject of savings is therefore much lower.

But are operators not forgetting the most important equation of their business – the customers? What benefits can NFV and SDN bring to them?

Over recent years, consumer behavior has changed significantly due to the introduction of new products and services that have caused data consumption to increase exponentially. Furthermore, customer experience has evolved requiring data services everywhere and at any time. This also includes a flawless and error-free experience that secures customers from any imminent network threat (e.g. cyber-attacks).

Network bandwidth demand: The network infrastructure running the Internet is being challenged like never before. According to the latest Cisco Visual Networking Index, annual global IP traffic is expected to reach almost 200 exabytes/month by 2020. This data explosion is mainly driven by the proliferation of smartphones and the consumption of (mobile) internet videos that are forecasted at a 31% compounded annual growth between 2015 and 2020.

Customer experience: The digital age is a reality and it is evolving very rapidly. From the internet of content (web 1.0) in 2005 over the internet of services (web 2.0) in 2010 to the internet of everything in a sharing economy and connected society. And with this development, the customer experience is changing too; customers are becoming more technologically educated and proficient, therefore expectations of communication services and connectivity providers have shifted. One of the essential changes for operators is to understand how to enable a personalised CEX and adjust services on-the-go/on-demand for the digital customer of today.

Network security: In correlation with the increasing customer traffic, the need for the Internet and network security increases accordingly. Although network-based security is already a key component in enterprise solutions, operators round the world face the same issue: the dependency on its own network security department, which may not be able to protect the entire network in the case of a cyber-attack on the operator itself. Network operators monitor the network security for several clients. In the case of a cyberattack, the operator’s security department can try to fend off the invasion or simply disconnect the client from the network. However, during an organised attack on the operator itself, the security department has no resources available to monitor the rest of the network, allowing potential security breaks within the networks of their corporate clients.

Having defined some of the requirements of the next-gen network, the functionalities of NFV/SDN may be able to support operators beyond the previously mentioned cost savings. The homogeneity and uniformity of the equipment that is required for virtualisation helps to optimise the network configuration and traffic routing. With a centralised software-layer controlling the network, it is only the physical infrastructure that is limiting an operator in delivering an advanced experience.

That being said, the new potential services that the two concepts are able to foster are:

  1. Bandwidth-on-demand: With a fully-virtualised network, it will be possible for operators to adapt the customer bandwidth requirements on demand, only being limited by the maximum capacity of the actual physical connection. Since all relevant “intelligent” components of the network are centralised, it is possible to instantly adjust the bandwidth and route the traffic accordingly. To achieve “real” bandwidth-on-demand, operators need to phase out all legacy equipment and to create a unified network.
  2. Service-on-demand: Aside from bandwidth-on-demand, network operators will also have the chance to instantly offer (new) services to customers, and by doing so, will also reduce the time to market. As no additional hardware components are required, the customer simply has to request the service of need and the system will automatically install and run the software on the customer’s device. However, service-on-demand is not only linked to providing new services, but also to the network’s ability to automatically troubleshoot problems and to reboot any service before the customer detects any error, thus improving the network’s operational efficiency as well as the customers’ experience/satisfaction.
  3. Network security: Besides the on-demand availability of malware protection services and other security software, network virtualisation and software defined networking can also help operators on a higher architectural level. If the network automatically configures its service chains to route the customers’ traffic through security applications that are appropriate to the content, security risks can be minimised. Also, in the case that the network software identifies an attack on a customer’s server, it has the possibility to simply cut the customer from the network automatically in order to avoid any incurring damage.

Following the enablement of bandwidth-on-demand, service-on-demand and the advanced network security, operators will have the opportunity to reposition their products and services on the market. By targeting some of the key customer requirements, operators that enable the functionalities of NFV/SDN will have a USP and should therefore be able to not only attract more customers, but charge higher contract fees and provide a superior customer experience and service.

What are the implications for operators’ network strategy and corporate strategy?

The evolution of the described customer demands combined with the development of new virtualised technologies and solutions require adjustments in the operators’ network and corporate strategies. In particular, network providers need to redefine the architecture of the infrastructure in terms of roles and requirements as well as update the underlying technology deployment strategy. With the launch of new services and services capabilities, the existing product portfolios and market initiatives need to be adapted to meet the new value proposition.

Network strategy: The network architecture of the future must be designed for broadband convergence and virtualisation enabling next-generation access technologies, including FTTH, xDSL, LTE, Wi-Fi, Ethernet (and Optical). Due to the enhancements in (Access-) technologies, the next-generation network additionally needs to be able to cope with the exponential growth of broadband traffic which impacts the bandwidth requirements of the access-, aggregation-, and core network. These bandwidth shifts influence the network dynamics and thus influencing the key source of congestion. While in traditional networks, the probability of congestions is the highest in the Access layer, these choke points will be shifting more into the Core. NFV/SDN can improve the efficiency/productivity of the network backbone while reducing the probability of congestion. In order to cope with the exponential growth of broadband traffic and to support network virtualisation and software-defined networking, the new proposed architecture for the fixed core and aggregation network is built more centralised and mainly uses optical links.

Virtualisation requires centralisation and edge computing. Therefore, the future network architecture should (1) merge the “core” and “edge” layer and (2) bypass the “access” layer of the core to drive efficiencies. By connecting OLT/MSANs directly to the centralised network using (3) optical links and connecting wider (rural) areas with (4) optical rings, it can further support operators in dealing with the increasing demand. Moreover, operators should (5) deploy peering/hubbing ports and data centres to convert regional PoPs and Central Offices to DC-based infrastructure as well as (6) virtual equipment, such as vCPEs, vBRAs, vBNGs, vCDNs to host the new network functions.

Corporate Strategy: Similar to the Network Strategy, the Corporate Strategy also needs to be adjusted to the new opportunities given by NFV/SDN. As previously outlined, NFV/SDN may not only bring operational benefits to network operators, but also has commercial implications for the business by offering bandwidth-on-demand, service-on-demand, and advanced network security services. These new service capabilities however do not immediately transfer into new revenue streams simply by introducing the new technology. It is necessary to refresh the commercial and business strategy of the company, and address several initiatives such as:

  1. Preparation of a detailed market and demand analysis for the new services
  2. Development of (commercial) strategy and business plan for the new services
  3. Streamlining of the existing portfolio and the development of new products & services
  4. Revamp of pricing regime (of existing and new products & services)
  5. Design and development of new marketing initiatives

All these tasks help to create a new value proposition for the operator that fosters a competitive advantage on the market and which may lead to a reduction in churn and/or an increase in ARPU per product & service.

Critical acclaim and conclusion

We have established that NFV and SDN can bring much more than just capital and operational savings to operators. However, in order to successfully transform the network to a virtualised and software-based architecture, operators are going to face several challenges. On the one hand, telco operators do not yet have the IT/IP skills that are required to enable software-defined networking. On the other hand, the reference vendors of network infrastructure are still trying to maintain a unique position by only launching virtualised equipment which is not compatible with other hardware and software. This causes one of the key pillars of the NFV/SDN benefits, i.e. reduced vendor dependency is at risk. Even with the launch of vendor-neutral technology and equipment, operators face huge investments that are required to upgrade the network and to decommission legacy technologies in order to fully run NFV and SDN. Considering that revenues have been stagnating over recent years, any large scale network investment is going to put telcos under further financial (cash) pressure. At last, it is important to keep in mind that most of the NFV/SDN implications that telcos are envisioning for their networks are based on examples from the IT world (e.g. SDN deployment in data centres). Due to the IT proximity to the telecommunication sector, a great hype has sparked within operators’ network departments.

Although the benefits of NFV and SDN for telcos are still to be proved, the potential at stake is enormous. Even though the customer view does not seem to be such a big subject yet, the relevance of the topic is picking up, as seen at the 2016 MWC panel discussion entitled “NFV Implementation: Beyond Cost Savings”. De facto, when looking at the potential of the new services that can be enabled due to the NFV/SDN functionality, the perspective on the advantages of NFV/SDN changes completely – from saving money to making money. This perceptional change can further validate the necessity of the investments needed to enable network virtualisation and to bring further attention to senior decision makers on the topic. Increasing ARPU and hence enabling top-line growth is the ultimate goal for all service providers combined with the competitive advantage from a service offering a point-of-view that may lead to an increase in customer satisfaction (i.e. reduced churn) and higher market shares (i.e. higher net additions). It is therefore in the interest of all stakeholders (i.e. network operators, equipment vendors, etc.) to further promote the benefits of NFV/SDN and to further invest in the technical requirements needed to enable the mentioned uses and to keep the momentum going for both technologies.