Next-generation access will redefine the telcos

Benoît  Felten has left Yankee Group to set up a market research and consultancy company addressing next-generation access.

Gazettabyte caught up with him to understand the goals of his new company, Diffraction Analysis, and why he believes next-generation access is critical for service providers.

"As soon as you, the operator, make that investment decision, it has fundamental implications as to who you are as a company"

Benoît Felten, CEO, Diffraction Analysis

Gazettabyte: There are several established market research companies addressing access. What is Diffraction Analysis offering that is unique?

BF: There are two reasons [for setting up Diffraction Analysis]. The first came to me when I was doing consultancy work for a [Yankee Group] customer. He said: “You are the only guy I know working for an established company that only covers next-generation access.” All the other guys cover broadband, with next-generation access being a sub-topic.

At that moment it coalesced something that I had been thinking about for some time: the migration from legacy to next-generation access networks is probably the single most challenging issue that established players will face, and the single biggest opportunity for challengers to grab. If you drown that [topic] among legacy [broadband] issues you might be missing the point.

The second reason, much more pragmatic, is that there are many small companies that simply cannot afford the cost of generic telecom research from established market research companies. To access research affordably, for me, that is a market opportunity.

When you say next-generation access, what do you mean?

BF: It refers to the replacement of the legacy copper network in all its incarnations – most cell towers are connected with copper today - with a fibre-rich network. Cable networks, wireline copper networks, mobile networks are all going to be fibre-rich. 

What are the key issues facing operators regarding next-generation access?

BF: The first for the operators is: How do we finance a network deployment and why do we do it? The established players all agree that they have to do it, sooner or later and probably sooner, and the core question is: How do we do it?

The problem is that it places access at the core of the telco business model. Ever since the internet started being successful, most legacy players – and that includes cable players - have seen themselves as service providers rather than access providers. Effectively, they are faced with a major investment which if they don’t do opens up opportunities for others to displace them. We are seeing that happen is small markets like Hong Kong, where a competitive player is on the path to eliminate the access network of the incumbent.

The threat is real, the customer need is real. The problem is operators don’t know how to use the network for their own revenues. They are faced with the choice of becoming a long-term utility – investing in the network for 20 years and reaping revenues for another 50 years – but that is unpalatable for them, or they find another way to use the network for revenues, keeping in mind that most new services do not come from telcos these days but from over-the-top players.

What we plan to examine are the alternative paths: What will be the operators’ role and where will the operators’ revenues come from once they have made this investment?

As soon as you, the operator, make that investment decision, it has fundamental implications as to who you are as a company. It is not just an upgrade.  

I was at a conference last year and a guy from NTT said: “We didn’t realise that when we made that [fibre access network] investment decision, we were rebuilding the company from scratch.” He said: “Now, 10-years-on, at a strategy level, we have understood that – we are in a different business now.”

What is Diffraction Analysis going to do?

BF: We are a market research and consultancy firm. It is important to do both: consultancy keeps you grounded in what is happening in the market. Research is your ability to step back and articulate the global view.

I have already signed a couple of companies for whom I do advisory services. We also have classic consultancy projects. We are working for a vendor right now who is asking us to look at opportunities for them to enter the access market. They have disruptive technology and are looking to partner with companies and take a stake in the access market. We are in the middle of this and our advice might be: don’t do it.

One of the things we want to do is build modelling tools that allow legacy service providers to map the network deployment in time and not just based on a single investment decision. Right now the question is do I deploy fibre or not? But the reality is even if the answer is yes, the deployment will take 15 years. If it takes 15 years, what happens to all the people that don’t have fibre as I – the operator - gradually connect them? 

We are trying to build a model that will optimise the cost and the service offered to end customers with a variety of technologies. This is where fibre-to-the-curb and various flavours like phantom mode DSL come into play.

We are aiming to do this by geographical area, to model where you should deploy fibre first and what you should do in non-fibre areas, and for how long, looking at the lifetime of these various technology options.*

What are the key lessons you learnt as a Yankee Group analyst?

BF:  One of the things that strike me is that in this economic shift we have experienced in the last 30 years, something has been lost and that is long-term vision. That leads many organisations to make hugely inefficient decisions. These decisions may be rational but the long term is no longer part of the equation. In the telecom business it is striking how far this can lead people into making wrong decisions.

The second thing that I learnt interacting with many industry players is that the single toughest challenge each organisation has is fighting against their own culture. There is a culture of business-as-usual which is at odds with the challenges of an ever shifting technology market.  Even companies in the internet space that everyone views as agile and willing to reassess themselves, you find these cultural issues.

I’m not saying anything original but interacting with these companies all around the world for the three years at Yankee highlighted this for me.

Most broadband users are still DSL-based. How will fibre-based access become massively deployed?

BF: Essentially there are three drivers for telcos to deploy. In order of importance they are: competition, network reboot and meeting customer demand. 

Competition is a clear driver. When as an organisation your network access business is threatened, every consideration about how fast you deploy for payback goes out of the window - you have to deploy. And then you learn the hard way since by responding and not anticipating, you make mistakes.

The second driver [network reboot] is not mature today.  Smart CTOs around the world are seeing fibre deployments as an opportunity to rethink way more than just their access infrastructure. And WDM-PON [wavelength division multiplexing – passive optical network] technology in access plays a significant part in that thinking.

If they deploy now, they may make savings and achieve network concentration but it is not massive. If they wait they might be able to save more which is why this driver isn’t working right now.

The third driver is meeting customer needs. Now, in their public discourse, operators say this is first and foremost but the reality is that since they have not found ways to make money out of traffic, they don’t want more traffic. So meeting customer needs is not a priority except if you are in a competitive market and someone else is meeting customers’ needs in which case you have to do it.

Diffraction Analysis’s team comprises people with wireline experience but the company does plan to also cover mobile. “I do think that there is a great deal of sense in having a mobile arm too but I can’t build that myself – I don’t have the credibility or the knowledge,” says Felten, who is looking at partnerships or recruitment to add mobile to the operation.

*Diffraction Analysis has just published its research programme till June 2011.