Vodafone will need to move beyond traditional telco offerings, transforming into a systems integrator and avoiding reliance on third parties in order to maintain network innovation and technology leadership.
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Vodafone Innovation Activities
Vodafone is the second largest mobile operator in the world with more than half a billion subscribers, bested only by China Mobile. As of November 2017, it operates almost 30 networks around the world that are fully owned and offer mobile, fixed, and content services. Vodafone is also responsible for several network innovations that are now standard in the market through its cooperation with vendors, such as the SingleRAN concept that was created in a joint innovation lab with Huawei. Vodafone has also been praised for business innovation through new tariffs that have now improved its top line in saturated and highly competitive markets, including the United Kingdom, Germany, Italy, and Spain.
However, Vodafone’s technology strategy and innovation plans are not always openly discussed. It is also perceived that Vodafone’s internal plans for NFV deployment were aggressive, met internal resistance, and ultimately failed to reach interim targets; the previous plan gave way to Vodafone’s Project Ocean, which focuses on operational transformation and specific network features. Contrary to other Tier One telcos, including AT&T, China Mobile, Deutsche Telekom, and NTT DOCOMO, Vodafone relies on third parties or joint innovation labs for network innovation, rather than in-house R&D. Although this is neither right nor wrong, it can disintermediate the telco (and most importantly, the centralized technology teams) from network innovation and become a laggard.
The Perils of Innovation Outsourcing
Network innovation has traditionally been outsourced or co-developed between telcos and vendors in joint innovation labs and several innovative technologies have been created in these environments. However, we are now in the age of software, where skillsets, processes, and internal operations are as critical as the technologies themselves; without these, the deployment of new technology (e.g., SDN and NFV) is a mere cost-cutting exercise and will not impact the top line. Moreover, traditional network innovation has happened on a pull-process, with telcos outlining a specific pain point for vendors to solve (e.g., high cell site costs were countered by SingleRAN).
Software often includes open-source components, so telcos now need to develop features internally or customize software to meet their own requirements. Commissioning a vendor to do so as part of a systems integration contract somewhat contradicts the value of SDN and NFV; both technologies are supposed to allow for more freedom in choosing between vendors. AT&T and China Mobile, for example, have both created their own MANO software (ECOMP and Open-O, respectively) and both have proceeded to merge and open source them (now ONAP). Relying on vendors for technology innovation is a risky exercise that may lead to losing a competitive advantage.
In-House Technology Innovation Is Necessary
ABI Research has coined the UnTelco principle, in which telcos go beyond their monolithic—and stagnant—connectivity business and start selling value-added services in end markets. Manufacturing, utilities, and logistics are a few examples where telcos can sell more than connectivity and can create expertise in analytics, IoT platforms, and more. However, to do so, the necessary technology expertise needs to be developed in-house and cannot rely on third parties: the telco needs to transform to a systems integrator, rather than rely on infrastructure vendors for technology innovation. At the end of the day, vendors need to sustain their business and it is questionable whether they can achieve this with software licensing alone, and it is natural that they will push for managed services and systems integration themselves. A successful telco needs to implement a balance between technology innovation outsourcing and internal R&D, and Vodafone may become the most prominent example of outsourcing leading to losing technology leadership.