February 13, 2017 | Written by: Craig Farrell
Categorized: Industry Insights
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Recently, I have been spending time with carriers and service providers (CSPs) discussing plans to transform from legacy TDM (Time Division Multiplexing) services to Internet Protocol (IP) based services in the future. Telecoms Embracing IP Services is necessary because:
• The cost of maintenance. Both the parts and people who understand legacy equipment are making it expensive to maintain.
• Features. Without transitioning to IP services, there is no easy way to add new capabilities and features that are necessary to compete with over the top service providers.
Transformation from TDM to IP services is a common strategic objective for CSPs in 2017. Although the move from TDM to IP services is seen by many as inevitable, CSPs have been slow moving to take the next steps along the journey to transformation.
What is holding back CSPs from embracing IP services?
I believe that for CSPs to undertake successful transformation from TDM to IP services a handful of critical factors that have slowed the transformation need to be addressed. So, what are these factors?
1. Profitability and Timing. Legacy services are still generating significant revenue at high profit margins. Even with the revenue from TDM services in decline, the case can be made to leave it alone for now. For many CSPs the business case for TDM to IP transformation lacks a clear trigger that necessitates transforming immediately. Despite published timelines for transformation, many CSPs have remarked that the risk on legacy services was low and the services were very profitable, so why spend money transforming them right now?
Addressing the profitability of legacy services is a particularly important priority. I believe that the best approach to strengthen the business case and provide an immediate trigger is to do a precursor analytics project to specifically examine the incoming TDM service orders. The purpose of the analytics project is to show the financial implications and number of incoming orders for TDM services that will be impacted by a transformation. Showing the number of orders and revenue impact is the first part of the story. To show the impact on margins the analysis must also incorporate the total cost of continuing to maintain expensive legacy equipment. Many TDM to IP business cases tend to underestimate the cost of maintaining legacy equipment nearing the end of its service life.
2. Migration strategy. Currently most CSPs implement some version of a “cap and grow” approach when transforming from one service to another. Cap and grow is a process where a new (replacement) service is built that implements the features of the old service. The new service is then tested followed by a “cut over”. After the cut over, all orders are fulfilled by the new service. This approach is expensive since it requires a significant up-front cost to implement the replacement service before any workload is migrated. Cap and grow is also high risk since cut over is usually an all-or-nothing event rather than a gradual move to the new service as features, coverage and functionality become available.
The alternative to “cap and grow” is a strategic redirection approach. Strategic redirection works by intercepting incoming service orders and making an on-the-fly decision based upon service availability, features and coverage to fulfill the order using the legacy TDM or the new equivalent IP service.
3. Fast followers. Many CSPs use the “fast follower” strategy, which means that few are prepared to be the leader in implementing a new idea or technology. Many CSPs would rather focus on being quick to replicate an idea once it has proven itself. To avoid the delays associated with fast follower tendency of waiting to see how transformation went at other operators, CSPs can look for small projects or geographies where transformations can be managed as individual or “contained” projects.
What does the future hold?
The move from TDM to IP has a certain “inevitability” associated with it. It is simply too compelling to ignore forever. So far many CSPs have managed to resist transforming significant services over from TDM to IP equivalents although some have begun to retire legacy services that are rarely or no longer used. As service providers feel the increasing pressure to reduce costs and deliver innovative new services the pressure to transform from legacy TDM services to IP equivalents will continue to grow.