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Reality Check: Navigating turbulent times of network demand and cost

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.

There’s no getting around the fact that the incredible success of on-demand applications like iTunes, Facebook and Hulu are creating network capacity and operational headaches for communications carriers.

The alarm bells in the industry have been sounding for some time over the spectrum crunch created by skyrocketing mobile data demands. In the past three years alone, some operators have seen 8,000% growth on their networks, a staggering trend that is projected to continue. Managing that level of usage – combined with rolling out the next generation of wireless data networks based on LTE technology – requires enormous investment. Looking ahead, the global expenditure required to increase network capacity could be staggering.

Responding to these industry-wide pressures, there is a new urgency for communication companies to revisit their existing network planning, engineering, and construction organizations – as well as their processes and systems to support the exponential consumption of data and video traffic gobbled up by new applications. For this reason, network infrastructure sharing and cost management will be increasingly required by all communications companies in order to remain efficient and keep their cash registers ringing.

The rollout costs for setting up high-speed networks are steep and these costs are not being matched by equivalent upticks in revenue. To make such investments possible while maintaining profitability, operational efficiencies and cost reduction strategies are essential.

Network sharing ventures – formal arrangements between two or more mobile operators to share various components of their networks – represent a significant trend and opportunity to reduce costs. By some accounts, a well-executed network sharing venture can reduce costs by up to 40% over standalone cost run rates. The network infrastructure can also allow operators to accelerate deployment speed, reduce capital shortages and close coverage gaps.

At the same time, operators must find ways to improve cost management for network and technology platforms. One way approach is to migrate and decommission legacy platforms across the network. To do so, companies need the diagnostic ability to identify the right areas for cost reduction – eliminating excesses and redundancies rather than areas essential to the business. Consequently, operators should also take a closer look at outsourcing non-differentiating network operations and related business processes – such as provisioning, network engineering, applications management, inventory data management and end-to-end testing. Based on our experience working with global communications service providers, we’ve know that outsourcing network maintenance and operations is an increasingly important strategy that can have a significant impact on the reduction of network operational costs, upwards of 50%.

One method that is getting a lot of attention for managing the tidal wave of data traffic is Wi-Fi offloading and it’s become a priority for nearly every carrier worldwide. In the United States alone, recent studies suggest that at least 25% of mobile voice and data traffic will need to be diverted from the macro network to meet demand. Although every market has its own unique considerations, Wi-Fi offloads could have a positive impact on many operators’ overall network strategy. And although providing the Wi-Fi “hotspots” doesn’t appear on the surface to be that difficult, implementing Wi-Fi in “high density” areas such as stadiums during sporting events is exceedingly complex and challenging to get right. Proven methodologies are needed to manage these high-density Wi-Fi solutions in order to deliver network optimization at a carrier-grade standard.

As the next stage of infrastructure build-out gets underway, new products and services will become an integral part of the solution strategy. Operators should also evaluate cloud computing as a way not only to improve traffic volumes, but also to drive higher revenue streams by selling integrated packages of connectivity, infrastructure and software-as-a-service.

Across the communications industry, the latest technology trends are already dramatically reshaping business models. Yet, most traditional communications companies have not yet come to terms with realistic view of industry change taking place. Despite these turbulent times, operators have a compelling opportunity to share more of their network infrastructure with one another and to contemplate where in this new value chain they want to participate to extract maximum value. The winners will be those players who differentiate services by working with new ecosystem partners and innovate quickly to compete effectively with shifting consumer preferences.

Paul Bultema is executive director, Communications Networks Strategy Lead, for Accenture’s Communications, Media and Technology operating group. His experience spans over 20 years working with communications companies across the globe, including engagements with wireline, wireless, cable and VoIP providers. In particular, Bultema focuses on strategies related to infrastructure scaling and network expense reduction. Bultema has a Masters Diploma in Strategy and Innovation from Oxford University, an MBA in International Finance from DePaul University in Chicago, and degrees in Business and Economics from Wheaton College, Chicago.

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