Technologies like 5G are changing the financial equation for communications service providers (CSPs) by moving the focal point from the hardware to software layer and shifting expenditures from CapEx to OpEx, according to ABI Research.
The change is the main takeaway from “Cloudification of Telecom Technologies and Equipment.” The new paradigm, the report says, is more consistent and predictable and complements cloud offerings from Amazon, Google, Microsoft and other cloud initiatives.
Earlier generations of cellular technology were based on a capital expenditure (CapEx) model in which CSPs paid a price to own hardware or software predicated on perpetual licensing. Network equipment vendors (NEVs) such as Ericsson, Huawei, Nokia and ZTE, received an upfront payment, with implementation falling to the CSPs.
In the 5G operational expenditure (OpEx) model, there may be no “product” sale at all. Suppliers still will be responsible for R&D and must invest in marketing and sales, but there is no large upfront sale. Instead, suppliers make money through ongoing “micro” transactions.
“With a growing importance of software, the commercial imperative from a vendor’s perspective is stark: depart from a finite supply of (3G and 4G) equipment, characterized by scarcity, to monetization models based on (5G) software where the supply is essentially infinite,” Don Alusha, ABI Research’s Senior Analyst 5G Core & Edge Networks, said in a press release.
This trend – which ABI Research calls the consumerization of telecom technologies and the cloudification of telecom equipment – puts an onus on NEVs to add value for the end user after the purchase. It also provides opportunities for forward thinking companies to distinguish themselves with creative innovations, business agility and in other ways.
The model is new, however, and there are unknowns ahead including performance, best practices and control of technology assets. The companies that figure these issues out will gain an advantage, ABI concludes.