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Profitable Next Generation Networks – maximizing the return on assets for carriers

By Thomas Ganswindt, Member of the Managing Board Siemens AG and Group President, Siemens Information and Communication Networks

Network operators continue to be confronted by a host of economic and technological hurdles. Some are due to market dynamics that are simply beyond their control, others are directly related to networks burdened by traffic volume and uncontrolled volatility. The current challenge in our industry is obvious. We must create solutions that both solve these problems and boost network profitability.

The answer lies in Next Generation technology that offers voice, data and multimedia applications in a network that also costs less to operate. The essential building blocks that guarantee the network operators a safe and profitable migration from their existing networks to Next Generation Networks are:

  • Next Generation Access
  • Next Generation Optics
  • Next Generation Switching

It is time to focus on a product strategy of "success-driven” capital expenditures. This means investing in solutions that are highly flexible, scalable and cost-efficient, and that offer new quick-to-market, revenue-rich services.

What constitutes a wise investment? Network operators must invest in areas of their networks that very efficiently generate the most revenues. An investment strategy toward this goal would include the following aspects.

  1. Investment in broadband access area should comprise network expansion, and easy to deploy IP services and applications that offer quick returns.
  2. A metro optics strategy that ensures that the increase in demand for these new broadband services does not result in a network bottleneck.
  3. These must then supported by improved network efficiency resulting in lower CAPEX and subsequent OPEX in a platform that invites users to be as efficient at home as they are at work or on the road in both a private and professional capacity.

Next generation access
Network operators today need an investment roadmap per se; a migration plan that quickly demonstrates real commercial benefit by allowing operators to capitalize on each individual investment step. This way, network operators can deploy a future-oriented, scalable network that enables new services and higher bandwidth usage each step of the way, while protecting previous investments in existing equipment. The first priority comprises investments that offer new revenues. The number of users is no longer growing as it once was, hence the average revenue per user (ARPU) must be increased. Our own survey of hundreds of residential and business customers using broadband access, dial-up or no data service at all demonstrated that broadband access has the potential to boost the ARPU significantly. This clearly indicates that investment in the access area should be the first priority for network operators. The installation of broadband DSL systems allows operators to broaden the portfolio of services that they can offer their subscribers.

Smarter than flat-rate DSL
Flat-rate DSL is a good start in terms of capturing user interest, but over the long-term it is not a profitable business model. By providing bandwidth at a flat rate, service providers remain stuck at the low end of the value chain. Flat rate, always-on access gobbles up network resources that could be more efficiently allocated.

Recently a solution has been deployed that challenges the limitations of the flat rate plan and comprises a better business model for both the consumer and carrier alike. This solution offers dynamic bandwidth allocation according to customer demand that supports new services, which can in turn be provided on an "on demand” basis. These so-called Service Selection Portals and Service Deployment Systems enable subscribers to access and activate services using a Web-based portal without requiring special client software on an as needed basis, rather than always-on.

Accordingly, the portal presents the subscriber with available service options, such as differentiated class-of service Internet access or dynamic selection of value-added content. Subscribers are offered the freedom to dynamically alter their services without having to log out and log back in. Multiple services may also be simultaneously activated by a subscriber while being billed separately.

Norway's leading broadband carrier, Telenor in partnership with Siemens deployed such a Service Deployment System and runs it very successful.

Revised importance of optics
New broadband access services and applications bring more traffic to the network operator’s network. While the core offers still enough bandwidth to handle the overflow, investment must be focused on metro areas to make sure there is not a bottleneck. Next generation optics delivers cost-optimized bandwidth to metro networks. And rather than replacing their existing SDH network, enhancing it is the most economical approach. New technology builds on the traditional SDH network to create a multiservice platform capable of meeting today’s and tomorrow’s demands for voice and data traffic, varied protocols, and flexible bandwidth. This means extending the current network rather than a forklift overhaul. As such the investment is relatively modest but very efficient; comprising an evolutionary approach that enables carriers to provide new value to their customer base by supporting both voice and data based services very cost-effectively.

Multi-service integration
An investment in a multi-service platform offers network operators not only very efficient and low cost data transport, but in turn the ability to offer business customers new services. The seamless integration of packet technology into SDH networks like Gigabit Ethernet, offers network operators the capacity for e.g. VLAN support, interconnection of campus networks or nationwide corporate private networks including the ability to offer various service level agreements. Through this capability to transmit nearly any data format, new business opportunities also arise in the area of storage networks. A transition to this multi-service platform provides a cost-effective route to a new network environment combining the full flexibility of packet switching with the reliability of traditional SDH. This results in a range of capabilities not available in existing networks, including fine granularity that allows efficient bandwidth usage, protocols that fit topology and QoS requirements and end-to-end management with rapid provisioning. Another key advantage is the ability to scale into the future with integrated DWDM and by allowing upgrades to the switching matrix capacity and line rates. For cost-conscious network operators, this means new revenue opportunities addressing enterprise customers and highly efficient delivery of diverse services.

Speed up service provisioning and reduce costs
We talked about the convergent solutions in the access area and at the edge of the network. The next logical step to ensure the smooth and cost-effective operation of the network is the convergence in the core network. We have developed technology that adheres to strict Return on Assets (RoA) controls featuring simplicity and attractive economics. In other words convergence solutions emphasize new and more precise network supervision that facilitates lower operating costs and features attractive added value services that can be rolled out quickly and economically.

Service providers today operate multiple networks:

  • IP networks for IP-based services
  • TDM networks for traditional voice services
This makes it very difficult to reduce OPEX. It also makes it difficult to provision services fast. On the other hand, service providers need to sustain their voice business, which remains a huge, but low-margin revenue base.

This means that any new investment in the network must do two things:

  • It must make provisioning of services faster and network operation more cost-efficient.
  • It must provide voice services with the known quality of service.
Next Generation Switching solutions have to perform all the call control and processing functions of traditional Class 4 and 5 switches but in an IP environment. They enable network operators to bring voice services to the IP environment with the proven reliability known from TDM networks.

Only by smart investing in communications that offers added value now, the telecommunication industry will achieve renewed profitability in the near and distant future.

For more information, please contact:
Rüdiger Mühlhausen: ruediger.muehlhausen@siemens.com

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