The Un-network Uncarrier

Note: The article is the first of a 3-part series which talks Facebook’s Telecom Infrastructure Partnership (TIP) initiative and the underlying motivation behind the same. The next two parts are focused on the options and approaches that Operators and vendors respectively should adopt in order not to suffer the same outcome as what happened in OCP.

When T-Mobile USA announced its latest results on July 19, 2017, CEO John Legere remarked with delight – “we have spent the past 4.5 years breaking industry rules and dashing the hopes and dreams of our competitors…”. The statement rung out true – in 2013 the stock hovered at a paltry USD 17.5 and now was close to USD 70 – with 17 straight quarters of acquiring more than a 1m customers per quarter. If anything – the “Un-carrier” has yet proven unstoppable. While this track record is remarkable, my hypothesis is that in the long term the “uncarrier” impact may seem puny compared to “un-network” impact which could potentially upend the entire Telecom industry – operators and vendors alike. If you are still wondering what I am referring to – then it is TIP, the open Telecom Infrastructure Initiative started by Facebook in 2016 which now counts more than 300 members.

The motivation for TIP came on the heels of the wildly successful Open Compute Project (OCP). OCP, whose members include Apple, Google and Microsoft heralded a new way to “white-box” a data center based upon freely available specifications and a set of contract vendors ready to implement based upon preset needs. It also heralded a new paradigm (now also seen in other industries) – you didn’t need to build and own it… to disrupt it (think Uber and Airbnb). And while many may falsely be led to believe the notion that this is primarily for developing countries in the light of the Facebook goal to connect the “un-connected”, I believe the impact will be for both – operators in developed and developing countries alike. There are a few underlying reasons here.

• A key ingredient in building a world class product is to have a razor sharp focus towards understanding (and potentially forecasting) your customer/ user needs. While operators do some bit of that, Facebook’s approach raises the bar to an altogether different level. And in this analysis – one thing is obvious (something which operators also are painfully aware of); people have a nearly insatiable quest for data. A majority of this data is in the form of video; unsurprisingly video has become a major focus across all Facebook products – be it Facebook Live, Messenger Video calling or Instagram. The major difference between the developing and developed world in this respect is the expectations of what data rates to expect, and the willingness (in many cases the ability) to pay for the same.
• In the 1^st world nations, 5G is not a pipe-dream anymore and has operators worried about the high costs associated in rolling out and maintaining such a network (not to forget the billions spent in license fees). In order to recoup this, there may be an impulse to increase prices – which could swing many ways; people grudgingly pay; consumers revolt resulting in margin pressure – and lastly – people simply use less data. The last option should worry any player in the video game; what if people elect to skip the video to save costs!
• Among the developing world, 5G may still be someway off, but here in the land of single digit ARPU’s, operators have a limited incentive for heavy investment given a marginal (or potentially negative ROI). On top of that there is a lack of available talent and heavy dependence on vendors – those whose primary revenue source comes from selling even more equipment and services; all increasing the end price to the consumer.

Facebook has it’s fingers in both these (advanced and developing market) pies and while its customers may be advertisers, its strength comes from the network effect created by its billion strong user base and it is essential to provide these with the best experience possible.

These users want great experiences, higher engagement and better interaction. Facebook also knows another relevant data point – that building, owning and operating a network is hard work, asset heavy and not as profitable. It has to look no further than Mountain View where Google has been scaling down its Fiber business. Truck rolls are frankly – not sexy.

It is not that operators were not aware of this issue, but traditionally lacked the knowhow needed to tackle this challenge which required deep hardware expertise. This changed with the arrival of “softwarization” of hardware in the form of network function virtualization. Operators were not software guru’s ….. but Facebook was. It recognized that by using this paradigm shift and leveraging its core software competencies it could potentially transform and potentially disrupt this market.

Operators could leverage the benefit of open source design to vastly drive down the costs of implementing their networks; vendors would no longer have the upper hand and disrupt the current paradigm of bundling software, hardware and services. Implementations could potentially result in a better user experience – with Facebook as one of the biggest beneficiaries. Rather than spend billions in connecting the world, it would support others to do so. In doing so, it would have access to infrastructure that it helped architect without owning any infrastructure. In short – it would be – the “un-network – uncarrier”.