Reality Check: Transform to turn a profit – the urgency to update legacy networks

Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
“If you do not change direction, you may end up where you are heading.”
So said sixth-century B.C. philosopher Lao Tzu. Undoubtedly, all communications service providers know that unless they transition legacy networks to IP fiber optic networks, they are likely to end up where they surely don’t want to be: at the bottom of the competitive heap.
The task facing CSPs is monumental – one of the biggest challenges to CSPs in the last 50 years. Customers are increasingly cutting the cord – literally – eroding the “cash cows” of voice and long distance services. A radically compressed life cycle for the network backbone of switching and transmission technologies, which used to last 25 or 30 years, is more akin to the computer industry’s five-year cycle of technology turnover. And now there are multiple layers of technologies that CSPs must manage, with Internet connectivity, gaming systems, home entertainment systems, smart home management and other value-added IP services all hungry for data on high-speed transmission networks.
As a result, CSPs’ worlds are much more dynamic, and providers must now incorporate speed into a drastically different business model that’s focused on flexibility and new, innovative services for a demanding customer base.
Yet, dismantling old networks can be harder than deploying them. Most CSP’s have done very little, if any, decommissioning in the past few decades. For one thing, the network has become more complex with multiple technologies and many different layers making management more challenging. It’s also difficult for CSPs to fund upgrades, because increased competition and new technologies have made it difficult for CSPs to charge premiums on new services to monetize products, services and network investments. What’s more, CSPs are investing in LTE networks and services, but they must maintain pricing similar to 3G rates or risk losing customers. Adding to the complexity of decommissioning legacy networks are the costs to turn them off.
Reducing operating costs really is the only choice, and decommissioning legacy networks fits the bill as it enables CSPs to ultimately better manage expenses and simultaneously offer more digital and high-value services to their consumer and business customers.
The cost-benefit of moving past the ‘status quo’
There may be pitfalls to avoid while migrating to a new network, but the bigger pitfalls lie in “status quo.” For example, it is challenging and expensive to maintain technology that is long past its prime. Managing expiring or costly maintenance contracts, and relying on end-of-life equipment that is probably housed in large, power-hungry facilities can also hinder growth. CSPs often juggle these challenges while they operate newer, more modern architectures alongside their existing infrastructure. Migrating to newer networks addresses these issues, because digital equipment is not only less physically bulky, but all-IP networks are easier and more cost-effective to manage, maintain and troubleshoot.
In addition, some CSPs believe moving to IP networks reduces the customer experience. However, modern networks offer customers newer, more reliable services previously unavailable on a legacy network. As a result, CSPs can improve their ability to meet consumer demand for fast, seamless multimedia communications that incorporate voice, data and video. In fact, some studies show that the potential lifetime value of consumers who purchase triple-play services can be 15-times that of customers on legacy networks.
There are other cost-related issues to keep in mind when migrating to all-IP networks. Whether it’s a consumer or enterprise migration, migration decisions must be made at the local wired center to fully leverage product profitability, technical migration and reduce facility operation costs. For example, sometimes CSPs can sell or salvage older equipment, reduce the footprints of wireline facilities – thanks to the compact nature of digital technology – salvage and sell copper fiber, and consolidate IT support systems for even more savings – as much as 80% of the previous space required.
Plan now to save headaches later
Quite bluntly, converting to IP networks is a monumental endeavor that must eventually occur, and it’s better to plan for it now rather than be forced to do so later. Remember, CSPs’ non-traditional competitors are already talking to enterprise customers today about the benefits of migrating to IP networks, and the new products and services they can deliver at a lower cost. Further, there are fewer technicians knowledgeable in programming, managing and maintaining legacy equipment, and new, competing companies will continue to enter the market. These new entrants are unlikely to base their offers on old technology.
CSPs who decide to decommission legacy networks should closely examine their business model to pinpoint the costs and cost savings, determine investments and potential return on investments and possibly outsource certain activities to further reduce costs.
The biggest payoff is this: converting to a digital network gives CSPs a strong foundation on which they can build a dynamic future where they can be more responsive to their customers’ needs. By any measure, that’s worth the effort.
Paul Bultema is managing director, network strategy for Accenture Communications, Media & Technology (CMT) group. John Morgan is the North American Offer Lead for Legacy to IP Network Transformation Services, CMT.