Embrace the next frontier
with 5G ecosystems
Near the beginning of Star Wars Episode IV: A New Hope, Obi Wan Kenobi offers Luke Skywalker a choice. He can stay on Tatooine and help his aunt and uncle on the farm, or he can join a daring band of rebels in a galactic fight against the advancing Empire.
Like many when offered a choice between familiarity and a risky unknown, Luke initially chooses to stay. But if he had, he would never have fulfilled his destiny.
A chance to transform business, industry and society
As the 5G age dawns, CSPs face a similarly fateful choice. Stay in the connectivity comfort zone with its dwindling revenues, or change course to play a key role in a far bigger and more exciting story.
This story doesn’t involve planet-sized weaponry or mystical powers. But it does involve banding together with allies to seize a daring opportunity: the chance to forge a more prosperous, equitable and sustainable world through the game-changing capabilities of 5G.
CSPs can play a vital role in this transformation, but they can’t do it alone. To maximize their contribution – and the rewards that come from it – they’ll need to team up with developers, systems integrators, hyperscalers, and maybe even other CSPs. Only by working together can these variously-skilled parties enable the full value of 5G to be realized.
“CSPs are on a generational shift from presenting a solution and being in front of the customer, to understanding that they’re actually part of an ecosystem,” says Evan Kirchheimer, a research vice president at Omdia. “What’s not clear yet is how they’re going to sell and profit from something where they’re not the primary or even the secondary supplier.”
CSPs must define their role in the wider ecosystem
Figuring that out will be crucial, because the path to profit in enterprise 5G isn’t in the plumbing. “The value in the industry is at the top of the stack,” says Akin Akintola, manager of Nokia's Open Ecosystem Network. “If CSPs move up the value chain, they can start to share in the economy that application providers enjoy today.”
But what exactly is that value chain – and is a linear chain even the best metaphor for how value is created in the 5G economy? Akintola offers a suitably galactic alternative. “I think of it as a constellation,” he says. “The 5G ecosystem is a constellation of mutually beneficial relationships aimed at addressing a specific business objective.”
Crucially, that means the business objective of the customer, not the CSP or any other player in the ecosystem. And the reason it’s a business objective rather than a consumer need is that the enterprise is where the biggest 5G opportunities lie – opportunities that will amount to $4.5 trillion by 2030, according to Bell Labs Consulting.
Dan McBride, who researches emerging 5G ecosystem models for Nokia, says that an ecosystem approach to the enterprise 5G opportunity is vital, because business goals like digital transformation and intelligent automation require complex solutions that exceed the capabilities of any one supplier.
“For CSPs, it’s about realizing they don’t have all the ideas, or that all the ideas won’t come from them,” he says. “To move up the value chain, CSPs need to enable innovation to occur elsewhere. Then they need to recognize when that innovation has value, and bring their commercial capabilities to bear to ensure that value is maximized.”
Learning to play with the hyperscalers
That’s (relatively) easy to say, but what does that look like on the ground? Ecosystems come in very different shapes and sizes, and not all of them are suitable or achievable for every CSP.
Some of the most successful ecosystems of the digital era are those created by hyperscalers and SaaS giants like Amazon and Salesforce. Both have built global platforms (AWS and AppExchange, respectively) where developers can access resources, experiment, build, and commercialize the results – with a portion of any revenue going to the ecosystem orchestrator.
The power of the platform
“People ask why we have such a big market cap when we’re only a $20 billion company. It’s because we saw the potential of the platform. We opened up the platform, we attracted an ecosystem, and we’ve turned that ecosystem into something much bigger than ourselves.”
Steve Mannel, Senior Director, Communications Industry, Salesforce
Nokia’s Akin Akintola says that CSPs can – and should – play in these hyperscaler-led ecosystems and can do so in a number of ways. One is simply by monetizing network APIs: providing 5G network functions as a service in the hyperscalers’ public clouds and charging developers either for bulk utilization or per API call. “That’s the most basic model,” he says. “It works, but it’s limited in its ability to achieve success.”
While the returns from simply providing open APIs will be minimal, the plug-and-play aspect of the model is something CSPs should aim for, Akin says. The way to extract more value from it is to join forces with the developers who make use of the APIs, and help them bring their solutions to market.
That can either be done in a “sell-with” model, where the CSP offers a bouquet of partner solutions to its customers in an app store-type setup, or in a “sell-through” model, where the developer white-labels its solutions to the CSP and the CSP sells it under their brand name.
In both models, the revenue from every sale is shared among the contributing players: whether that’s just the CSP and the developer, or the CSP, the developer, any hyperscaler whose platform or marketplace is used, and anybody else in the equation. While revenue sharing can get complex, a rules-based payments engine can ensure everyone gets what they’re owed in real-time, Akintola says.
Capitalizing on customer intimacy – a critical CSP advantage
Realistically, there probably will be a hyperscaler involved somewhere in these plug-and-play models. As telcos are geographically limited, attracting a critical mass of developers has always been a challenge. “If a CSP partners with AWS in Europe, and another CSP partners with AWS in the US, and another with AWS in Japan, the common denominator is AWS,” says Pablo Tomasi, a principal analyst at Omdia. “So AWS is where the developers will go.”
But in a different sort of ecosystem, that local focus could create a significant advantage over hyperscalers, who tend to prioritize scale and speed over deep customer relationships.
“A telco can bring a high-touch approach,” says Tomasi. “5G is a new technology for enterprises, so the CSP can help them understand the technology and how it can be used to address their business needs. They don’t need an ecosystem of 50 partners to do that – they can do it with a handful.”
It may not, however, be the same handful of partners for every business need. The needs of manufacturing companies are very different from those of healthcare providers, and organizations in those sectors will look for relevant vertical experience in the suppliers they engage.
Vertical ecosystems hold promise
For CSPs, then, one promising ecosystem play might be to team up with others to address a specific vertical or use case, and then replicate the approach for as many verticals and use cases as is viable.
It’s an approach taken by Orange in France, which recently got together with a systems integrator (Capgemini), an insurer (Generali), and a biopharmaceuticals company (Sanofi) to kick-start an ecosystem focused on developing innovative e-health solutions.
Its open approach and plan to involve “around a hundred French and European startups, as well as other players” means it may grow to be quite large, but it will still only focus on one sector. Unless Orange wants to place all its bets on e-health, it will need to join other ecosystems as well – and this is where important decisions lie for CSPs, according to Omdia’s Evan Kirchheimer.
“On the enterprise side, CSP sales teams can only present themselves as experts in a certain number of areas,” he says. “It doesn’t scale as well in business as it does in consumer. So, it’s about CSPs choosing the two or three ecosystems they can afford to support, rather than trying to boil the ocean.”
Choosing where to invest will be critical
CSPs will need to choose carefully for two reasons. One is that the chosen ecosystems need to have a reasonable chance of success. Playing a high-touch role will mean investing in vertical knowledge and sales skills – as well as investing time and effort into helping developers and end-customers make the most of 5G’s capabilities. Those investments will need to deliver an acceptable return.
The other is that there must be something more in it for the CSP than the opportunity to supply the plumbing, which is at risk of becoming commoditized in the cloud. Enabling other players to innovate is an important aspect of an ecosystem model, but at the same time, CSPs must find something to bring to the table that generates more for their own business than just connectivity revenue.
The jury is still out on what that will turn out to be, but a number of possibilities are emerging. Omdia’s Pablo Tomasi sees potential for CSPs in private wireless ecosystems. While systems integrators (SIs) could take the lead in private 5G deals because of their industry expertise, he says, CSPs can offer consultancy around custom network design, build and integration, as well as navigating telco industry regulations.
Kirchheimer, meanwhile, sees opportunities around multi-access edge computing (MEC). 5G use cases like driverless vehicles and smart machinery require data processing at the network edge, and it’s here that telcos have the upper hand in terms of real estate.
“Some of the first functions that enterprises want to put at the edge are network functions,” Kirchheimer says. “And that’s where I see some opportunity, because service providers are positioned physically close to the premises in the way that other providers aren’t.”
It’s an opportunity that Vodafone, for one, is exploring. Its recently-announced 5G MEC partnership with AWS sees the CSP and the hyperscaler take a joint leading role, working with an ecosystem of more than 180 companies to develop edge solutions for healthcare, Industry 4.0 and transportation.
A fertile opportunity with small and medium enterprises
One very promising opportunity for CSPs lies in the SME market. Small and midsize businesses often need more hand-holding than the hyperscalers provide, but their budgets can’t often stretch to working with a systems integrator like Accenture or EY.
CSPs already have the advantage of close and trusting customer relationships in this segment. That puts the CSP in a prime position to step into an SI-like role, helping small and midsize businesses maximize the value of 5G by implementing valuable applications that are pre-integrated with its network.
Angus Ward of BearingPoint//Beyond believes an ecosystem approach is crucial to leveraging the SME opportunity: “Today, most 5G offers for SMEs are ‘Consumer Up’ – a re-sleeved consumer offer,” he wrote in a blog for Light Reading’s 5G Exchange. “However, 5G's real value lies at the higher tiers of the value proposition, which often involve more ecosystem partners and can be deeply transformative to help SMEs achieve a significant strategic shift.”
This is where a marketplace or app store-like model could help, with the CSP providing a storefront for an ecosystem of developer partners (similar perhaps to Xero’s Marketplace or Slack’s App Directory), as well as implementation and integration services. It could also offer those partners access to its charging systems, helping them to commercialize their 5G-centric apps faster and at lower cost.
As 5G becomes reality, this may be the model that emerges from current, innovation-focused CSP-led ecosystems, like Deutsche Telekom’s Hubraum or AT&T’s 5G Innovation Studio, which provide resources and proving grounds for next-generation 5G apps.
To succeed, CSPs must open up to partners and be persistent
For any ecosystem approach to be successful, CSPs will need to abandon their ‘walled garden’ mindset and make it easy for as many developers as possible to work with them. “CSPs today have a high engagement threshold and tend to go to market with just two or three partners,” says Akin Akintola. “They really need to open up, because the size of an ecosystem to a large extent determines its impact.”
The other critical mindset shift will be from one of ownership and control to one based on loose partnerships and a fail-fast culture. “If one value proposition doesn’t work, you quickly make a decision and move on to the next thing,” Akintola says. “And you have to stick at it. If five, six, seven applications don’t work, it doesn’t mean the whole ecosystem doesn’t work. We made that mistake ourselves at first, but through persistence, we finally got there.”
A new path – and a new hope
The decision to stay in the connectivity comfort zone or evolve to play a role in an ecosystem is a critical one for CSPs. But, like Luke Skywalker returning home to discover the farm has been obliterated, it’s a decision that’s largely been made for them. The real promise of 5G lies in the enterprise, and enterprise customers need an ecosystem of suppliers to help them realize it.
“The ecosystem approach is the main, if not only, path to success in enterprise 5G for CSPs,” says Omdia’s Kirchheimer. “But it’s a path that will prove challenging, and, in some cases, narrow. It will require focus and commitment, as well as a cultural, sales and channel shift.”
It will also mean figuring out which role to play. “With more workloads moving to the hyperscalers, CSPs will need to focus on what they can offer that’s unique: whether that’s connectivity expertise, local points of presence, mobile security, or other capabilities,” says Kirchheimer. After all, it took a team of rebels to beat the Empire. But without Luke’s unique Jedi skills, it wouldn’t have been beaten at all.