At best, the cost of running a PSTN is flat, and it will tend to increase as an operator’s  inventory of spare parts runs low, equipment becomes obsolete and spares are more difficult to source. If revenue from legacy services declines as quickly as Analysys Research predicts, and broadband saturates quickly, then the attractive margins on wireline now generally enjoyed by incumbents will rapidly be eroded (see Figure 1). Hence the tactics incumbents use to defend revenue from and margins on legacy must be part of a longer term strategy of managed decline and business transformation.

 Figure 1: Potential effect of NGN transformation on incumbent financial indicators                                 ( Source: Analysys Research, 2008)

The pertinent question about NGN transformation should be “How?”, not “Why?”, and operators urgently need a clear view of migration that takes into account long-term changes in their business environments. The soft landing that legacy services require is, therefore, largely a matter of speed and polished execution, rather than of strategy or tactics. Compatibility, resilience and security of the all-IP network are obvious prime concerns. Many of the individual issues, although challenging from a technical, planning or organisational point of view, are strategically simple: get x, y and z right, otherwise you will lose your customers. Nevertheless, some general strategic points about the competing demands of long-term visions and short-term needs can be drawn out.

The timescales for NGN transformation are very long. BT’s 21CN started as a five-year project, but now looks like being at least a seven-year project. Operators need to think a long way ahead, and defensive strategies typically do not do this. Operators should be asking: “Where do you think the world will be in ten years’ time, where do you think the telecoms world will be in ten years’ time, and what sort of business do you want to be in ten years’ time?” These questions are difficult to answer, but two things are certain.

• The external telecoms world will move faster and in a more radical way than operators expect. The incumbent’s fixed network will not play the same role in the telecoms environment forever. Incumbent operators need to be the drivers of this change, not bystanders or, even worse, victims. Voice is by far the largest part of legacy. It is critical that operators transform voice into a smaller, leaner business. The imperative is to manage this decline – and redirect energies – rather than to resist it. Just as the separate TDM voice network, with its limited service set, is subsumed into a service layer on a unified network, so should the idea of a voice business be subsumed into an IP service set.

• Any NGN transformation process will be slower than operators think. By the time the process is complete, it will have taken directions different from those originally envisaged, due to the emergence of new carriernetwork solutions and the identification of architectural problems in the original plans. Next-generation transformation is not a once-and-for-ever conversion; it is part of an evolutionary process and should be treated and communicated as such. Hence it is important that operators do not get caught up in the defensive, shorter-term concerns of customers, especially those of other telcos, and, as a result, over-commit themselves to expenses that may turn out to be unnecessary in the longer term. Incumbent operators need to be able to look beyond the current concerns of other interconnecting operators to an environment that is not dominated by the demands of emulating a legacy service set. Nor should incumbents become fixated on ‘the plan’: although processes need to be robust in order to achieve long-term goals, they also need to be flexible and responsive, and therefore subjected to regular reviews and re-assessments.
  

Rupert Wood (Principal Analyst) directs industry strategy research at Analysys  Mason, which focuses on the long-term issues surrounding industry transformation and  structure driven by different forms of convergence. In addition, he has produced research for Analysys Mason in the areas of broadband access, services, pricing and regulation, fixed–mobile substitution and VoIP.