When is a service provider not a carrier?
Here's an interesting conundrum. Bandwidth is increasingly becoming a commodity, yet the cost of provisioning, delivering and monitoring that bandwidth continues to rise.
According to the META Group, up to half of service provider spending goes towards operations. So in some sense, one might argue that service providers don't really sell bandwidth. They sell bandwidth packaging (sort of like a cereal company selling 30 cents worth of cereal in a $2.50 box).
You might think, then, that service providers would view their provisioning, activation and monitoring suites as competitive advantages, and the bandwidth as effectively a give away. But you'd be wrong. Most service providers my firm works with view bandwidth as their primary offering, and the provisioning, activation and monitoring systems as an almost irrelevant add-on - even when it's far more expensive than the bandwidth. The few visionary individuals within these service provider organizations who understand that it's the other way around find themselves lonely voices in the crowd.
Why does it matter? Because an organization's basic structure, expenditures and focus derive from its overall business model. Specifically, companies in low-margin industries (retail, groceries, wholesaling) tend to require highly scalable, efficient and specialized infrastructures that enable the organization to wring pennies out of overhead costs - but that aren't highly flexible and adaptable. (I'll never forget the client who pointed out that the $5 per month for frame relay "shadow PVC" backup circuits was simply out of her budget, given the 1,100 stores she had to support.) The emphasis in this kind of industry lies in reducing the total cost of ownership (TCO) - streamlining operations, even at the expense of functionality.
A company in a higher-margin industry, in contrast, has much more leeway in the systems it deploys. It's no surprise that the most sophisticated IT departments in the world are those in the financial services, pharmaceuticals and entertainment industries, whose CIOs and top network executives view technology as a competitive differentiator. Companies in these industries focus on improving return on investment (ROI) - with the emphasis decidedly on the R.
Telephone coompanies that can't decide which camp they fall into are in trouble, because they'll spend too much (too much "C" in the TCO) while delivering too little (not enough "R" from the ROI). This confusion lies at the root of most customers' unhappiness with their service providers today.
When will this change? When service providers begin recognizing their operations support systems and business support systems (OSS/BSS) represent a competitive advantage. Those carriers that have invested heavily in such systems - and built out solid, effective ones - will ultimately recognize that they can succeed even if the bandwidth they offer is commoditized, or even free. Some may even choose to offer high-end services across bandwidth provided by other telcos (which focus on wholesale bandwidth delivery). Ultimately, we'll see a dichotomy in the carrier world, with wholesalers delivering undifferentiated bandwidth and service providers provisioning, activating and monitoring services delivered across that bandwidth. My best guess is that it will take 3 to 5 years for this mindset to begin to take hold.
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Johnson is senior vice president and CTO for Greenwich Technology Partners, a network consulting and engineering firm. Her column appears biweekly. She can be reached atjohna@greenwichtech.com.
