Changing the telco paradigm from vertical integration to horizontal integration

The accelerating market for digital services means most telcos are at risk of falling behind more agile DSPs. Dominic Smith considers how telcos can make the move to horizontal architectures and regain that competitive edge.

The telecoms industry has traditionally been run based on vertical integration with one entity not just owning and operating the network infrastructure, but also delivering the services and managing the customer relationships. However, the shift to high-speed data networks (fixed and mobile) has opened a whole new world of digital services that are already being delivered independently from the networks that carry them.

Furthermore, end users have become both consumers and producers of data (e.g. YouTube). Within such an ecosystem, a vertically integrated approach with dedicated network infrastructure for each service is inefficient, and telcos that continue to follow this model are at risk of falling further and further behind their more agile digital competitors.

From convergence to open access

The answer for many telcos has been to combine their services into multi-play bundles – fixed, mobile, broadband and TV – using the benefits of convergent OSS and BSS solutions to orchestrate services across multiple underlying networks and provide a single point of charging and billing for those services.

This undoubtedly brings greater efficiencies and economies of scale, but it is still going against the tide, with more and more consumers and businesses wanting greater choice and to unbundle their services, rather than finding themselves locked in to bigger bills with one supplier.

Moreover, the capex intensive nature of rolling out fibre and 5G, combined with the decreasing investment returns to be made, means that it is increasingly difficult to justify overlapping and competing networks. Whilst telcos continue to argue for a “fair share” payment from the big tech firms whose services depend on their networks, even if this is successful, it is hard to see how the business case for multiple competing networks can ever stack up or be sustainable in the long-term.

The future of the telecoms industry lies in a horizontal structure that minimises infrastructure costs and provides open and equal access for service providers to compete not just with other CSPs, but with the digital services providers (DSPs) too.

The open access network model (also known as “neutral host”) allows for services to be provided on a fair and non-discriminatory basis to network users by separating the roles of the service provider (ServCo), network operator (NetCo) and infrastructure owner (InfraCo).

Of course this doesn’t mean there can be only one InfraCo, but rather there should be only one InfraCo in a region for a specific type of network access, e.g. 5G or fibre. NetCos then bring together and run groups of infrastructure which they make available to the ServCos to deliver services to end customers.

In practice, some NetCos may also own some infrastructure (often a legacy of the old vertical integration model) but also operate networks on behalf of other InfraCos. In fact, some companies may have divisions which operate at all three layers of the model. BUT the key to the open access model is that these layers operate independently and provide equal access and opportunity to businesses competing in the other layers.

Wholesale aggregation

This all sounds great in theory, but it doesn’t take long before you realise how many combinations of ServCo / NetCo / InfraCo are possible when you have multiple businesses operating in each layer!

The open access model cannot work if a new ServCo has to integrate directly with every NetCo to provide nationwide coverage – that would be creating a greater barrier to entry rather than simplifying things. And this is where the additional role of a wholesale aggregator is crucial – providing the middleware layer that connects multiple ServCos with multiple NetCos.

The key to making this work is standardisation, and that is where the TM Forum Open APIs really come into their own – offering a robust and proven method for BSS and OSS solutions to communicate with each other, dramatically simplifying the onboarding process onto the wholesale platform with only one point of integration for each company. It is also essential that the wholesale platform is fully multi-tenanted and offers a flexible product catalogue for managing all the wholesale products and packages.

In the open access model, everyone benefits:

• InfraCos can increase the penetration and utilisation of their networks and create increased income which can be used to expand into more remote areas.
• NetCos can focus on operational efficiency, without the burden of universal service obligations.
• ServCos can reach more customers by gaining increased coverage through access to multiple networks, and more easily move into adjacent markets and provide a broader array of services to their customers.
• Customers are given greater choice of service provider and better value for money.

This is the model that has been successfully adopted in Denmark, where Cerillion has been working with OpenNet for the last five years, helping them to become established as the leading wholesale aggregator with a standardised IT platform, processes and contracts which ensure low costs and open access. With Cerillion as its core platform, OpenNet now connects 15+ ServCos with 10+ NetCos, using a template-driven model to enable a very smooth on-boarding process.

René Skjøde Andersen, Head of Programme at OpenNet explains:

Our first goal was to prove that we had a robust wholesale platform and could successfully on-board our first Service Provider and Infrastructure Owner partners. Having successfully achieved that first milestone in early 2019, we have also now proved that we have a compelling offer which has attracted all the major ISPs onto our platform and are continuing to expand our reach. We saw an opportunity to transform the fibre market in Denmark. By working with Cerillion, we have created a centralised platform that benefits both Infrastructure Owners and Service Providers, and ultimately delivers greater choice and better service levels to end customers.

Furthermore, Cerillion is working on the ServCo and NetCo sides too, with its BSS/OSS suite also deployed at Norlys Digital and Norlys Fibernet, connecting via the open integration layer already implemented for OpenNet.

Contact us now to discuss out how Cerillion can help your business to succeed with an open access model. This article first appeared in the TM Forum report:

Cerillion is a Silver Partner at the TM Forum's DTW24 - Ignite, taking place in Copenhagen from 18-20 June. Book a meeting with a member of our team of expert consultants.