Separation of networks: yes, there is life after divorce

A marriage between telecommunications networks and the service layer. Something that started years ago, but has faced some disputes

The idea of separation tends to be controversial in all spheres, in relationships between people, in the company/employee relationship and – why not? – in the relationship between the network and service layers. These two entities have been in a fierce dispute in recent years, even more with the new distractions and news that will be detailed below.

The Service Layer was initially seen as the end product delivered to the user: voice via fixed and mobile telephony, and data via fixed and mobile broadband. There came a time when this layer began to reinvent itself, with the now “vintage” VASs (Value-Added Services).

At first, these services were only ringtones and wallpapers, and gradually evolved into music, WAP radio and even the “ringback tone” . The services were offered by content manager partners, who received their share of the sale in exchange for the carrier’s channel and customers. The relationship started to change with the arrival of newcomers: OTTs (over-the-tops) like WhatsApp, Facebook, Waze, Instagram, Netflix and Amazon. The services did not directly reimburse carriers and used the network capacity, which increased each year – and is still increasing – as the demand for access increased.

Despite being network usage “predators,” OTTs eventually partnered with carriers, with content consumption, not to mention the franchise and implementation of network cache at carriers.

This is a business that is constantly changing, with aggressive margins and profits, requiring great flexibility and change management.

Considering the new gold of telecommunications companies, the Network Layer evolved, increasingly, into a virtualized or even shared layer. There is a growing need for network expansion, either via FTTH or even with the advent of 5G, to provide not just “a faster Internet,” but a new ecosystem ready for new services.

Investments in this layer have never been so high. Even during its financial restructuring, carrier Oi maintained the pace of investments in this segment.

Recently, we have seen a lot of 2G and 4G network sharing moves in the press, so as to focus on investments in Fiber and 5G. Both Vivo and Tim favor network sharing and want to differentiate themselves in customer service and new services.

Other medium-sized telcos face the dilemma of which path to choose, or if they should choose a different path. Clearly, they can and should choose to focus as a company on an increasingly competitive scenario: To be the best at networks or services, but with different focus and administration.

Nothing prevents the same economic group from owning multiple companies, but each should follow its own path, in view of market challenges, business margins and return pressure from its shareholders. The separation of layers may be more than just an alternative, and in fact a solution for business and survival in the industry.

 

Ricardo Bassoi
ricardo.bassoi@nae.global

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Nae works with telecom operators, large companies and public administrations to anticipate the challenges of market growth and transformation, improving their business strategy and operational efficiency. The company has offices in Spain, Colombia, Mexico, Brazil and Costa Rica, and has a team of over 600 professionals.