BT and Telefonica, former incumbent telecom providers and network operators in the UK and Spain respectively, have both over the past 14 months begun the process of detaching their enterprise-oriented businesses from their network owning divisions. Both have created separate services-oriented divisions (DigiCo in BT’s case, Telefonica Tech for Telefonica) and both now have emphasized the fact that their services are sold independently of their network infrastructure – even network services.
Both providers have also sold network assets – BT in Germany, Spain, and Italy; Telefonica in central America. The American-based provider GTT has gone a step further and has sold off its entire global network – a significant volte face for an SP that as recently as 2018 made a major acquisition, Interoute, in order to increase its global network footprint.
Why the change?
The primary motivator is, inevitably, financial. Telefonica needs to reduce its debt burden, BT is still recovering from an accounting scandal in Italy and the impact of several unprofitable large global outsourcing contracts it sold to customers in the 2000s and 2010s, and GTT needed cash to fund a change in strategy.
GTT’s strategy change also points to the technology cause of the strategic change being made by multiple SPs. The advent of overlay networking, which uses software-based network orchestration to control traffic flows rather than technology inherent within the underlying infrastructure of the physical network, has undermined the case for owning the network infrastructure. The only way for most SPs to make money out of networks is to sell managed telecoms services rather than selling the ‘plumbing’.
Network assets for sale
However, the problem extends beyond telecoms services for businesses and impacts the next generation broadband and mobile services (and the networks they run on) that are used by both consumers and businesses alike.
The need to fund next generation technologies such as fiber-to-the-premises broadband (FTTP – sometimes called ‘full fiber’) and 5G mobile has put a significant burden on companies, for example, BT and Telefonica. Vodafone, which runs or jointly runs national networks in multiple markets in Europe, Africa, and Asia, has also sold off network assets in markets such as New Zealand, Qatar, and Egypt. This reflects the heavy burden on Vodafone of rolling out these technologies.
On the wireless side, Vodafone has also begun the process of selling off its mobile mast infrastructure to raise capital. The cost of buying spectrum and upgrading mast sites (both the masts themselves and the wireline networks that connect them to the mobile core) for 5G will cost Vodafone billions. This is made worse by the impact of political actions against Huawei. Vodafone estimates removing the Chinese vendor’s equipment from its network will cost an additional EUR 100+ million, whilst BT has put the cost at GBP 500 million.
To make matters worse, SPs are not yet sure how they will make money from 5G. Consumers won’t necessarily pay more for 5G services whilst the use cases of the technology for enterprise customers are still being developed.
Net neutrality is an issue
An additional fly in the ointment for the SPs Is net neutrality – the principal that network operators must carry traffic from online content providers such as Netflix and Disney+ on equal terms. Recent rulings by the US courts have made net neutrality more of an issue for network operators. The increased demand for online services, something that has been exponentially accelerated by Covid-19, means that wireless and wireline networks require further investment to carry vastly increased data loads for services the network operators cannot monetize.
The net result is that networks may become too expensive for network operators.