Telcos urged to ‘delayer’ for survival and growth

Ending the conglomerate model

Most telcos today operate like conglomerates with significant cross-subsidisation between divisions. This makes it difficult to assess the true value of investments.

“It’s very difficult to understand if a billion dollars spent on the network is actually impacting customer experience or coverage, and is it really driving returns?” said Singh.

Delayering forces a commercial relationship between the layers. The ServCo, acting like a value-added reseller, would buy network capabilities from the NetCo based on what its customers actually want and are prepared to pay for.

“The ServCo will say, ‘Hey, these services I received from you, I can sell in the market. These I can’t’,” Singh said. “This transparency is not available now.”

This avoids scenarios in which the network division invests considerably in technological improvements, such as ultra-low latency, that customers may not value enough to pay a premium for.

“You can keep improving X, but if it doesn’t help me sell more, why do you do it?” Singh added, noting that delayering could lead to harsh, commercially driven debates.

To enable delayering, telcos would have to treat network functions not as broad services but as discrete, modular products called stock keeping units (SKUs).

For example, instead of selling a premium 5G plan, the NetCo may offer a catalogue of capabilities or SKUs, such as a low-latency guarantee or a network slice for a certain application, each with its own cost. The ServCo would then mix and match these SKUs to create tailored offerings for both consumers and businesses.

This will help telcos better monetise 5G services, where the value lies in delivering specific qualities of service for applications ranging from industrial automation to mission-critical emergency response networks. Furthermore, instead of guessing how to price the services, the delayered structure would allow for clearer “price discovery”, Singh said.

Several European carriers have already embraced delayering. For example, O2 in the Czech Republic has divided its operations into Cetin, a NetCo that supplies wholesale network SKUs to O2, its ServCo, and other third-party operators. The move helped instil discipline and allow accurate cost attribution for all network-dependent offerings.

Despite the clear benefits, the path to delayering is difficult. Singh noted that significant changes to organisational structures can be hard to implement due to cultural barriers and the way processes work in telecommunications. And unlike incremental improvements, delayering is a transformation that requires complete commitment. “You either do it or you don’t. You can’t take mini-steps,” added Singh.

Delayering also requires significant upfront investment, including revamping legacy billing and support systems (BSS) to handle a modular, SKU-based catalogue, along with a strong impetus for change. “Without an external catalyst, which could be a private equity firm or profit warnings from investors, the probability of companies going down this road is very low,” Singh said.

Delayering is more likely to succeed in markets with strict government oversight, Singh said, explaining that in these markets, regulators want visibility into the operations of critical national infrastructure, which the NetCo effectively provides. But this could also be a double-edged sword. “The more transparent you are with regulators, the more likely they are to regulate you, so that’s a real risk as well,” he said.