The growing need to go beyond the commoditized voice and data services and the upcoming 5G-enabled use cases is pushing the telecom service providers to acquire System Integration (SI) capabilities to increase their revenue by offering new use cases to the enterprise segment.
Increasingly several telcos are collaborating with SIs to gain competencies to capture private networks and Internet of Things (IoT) opportunities. Several deals indicate a shift in the equation between the Communications Service Providers (CSPs) and System Integrators (SIs). For instance, recently, Telefonica Tech collaborated with tech giant Microsoft to offer private 5G and on-premise edge computing to address the requirements of the enterprise segment.
Another prominent example is the partnership between IBM and AT&T. As per this deal, AT&T gets IBM’s systems integration expertise to create new services. IBM will make AT&T Business its primary provider of software-defined networking. At the same time, AT&T Business will help transform IBM’s networking solutions with their latest technologies, including 5G, Edge Compute, and Internet of Things (IoT), along with multi-cloud capabilities using Red Hat.
More recently, Bharti Airtel announced a partnership with Tata Consultancy Services (TCS). As per the terms of the agreement, Bharti Airtel will pilot and deploy Tata’s technology as part of its 5G rollout plans. On the other hand, TCS has developed an O-RAN based Radio and NSA/SA Core and has integrated an indigenously-developed telecom stack.
“There is little doubt that the telcos need to develop system integration capabilities, particularly to address industry digitalisation requirements. 5G and private networks are the further motivation why many telcos across the world are trying to develop SI capabilities. In the industry digital transformation solutions, connectivity is just one of the elements,” says Amresh Nandan, Research Vice President-Communications Service Provider at Gartner.
The consumer market is stagnating in all geographies leaving telcos with little option but to explore new avenues of growth. Further, with 5G services being rolled out along with edge computing and network slicing, the telcos are looking to acquire professional services and IT services capabilities.
5G-enabled private networks is a key opportunity for the telcos. However, connectivity is just one of the requirements of enterprises. Businesses are looking to deploy several business applications on the communications networks, and typically, they want to deal with one vendor instead of several vendors for different components. It is here that the telcos need system integration expertise. They alone are unable to meet the needs of the enterprises. Further, with SI help, telcos can become Software-as-a-Service (SaaS) service providers, providing integrated systems and customized vertical services as needed. This way, telcos stand to expand their service portfolio considerably.
In telcos’ favour, they have natural and unique advantages in being close to data sources and scale. Further, by taking advantage of Artificial Intelligence (AI) and Machine learning (ML), the telcos can automate network operations, improve customer experience, and work on new business models that can potentially give them a competitive edge. However, all this requires extensive software skills like virtualization and orchestration, which are associated with system integrators.
“Telecom service providers are facing challenges related to lower margins and rising infrastructure costs. Hence, current networks require a revolutionary transformation with 5G, for which, it is important to manage and operate networks as a ‘Software Plug and Play Platform’. System Integrators (SI) are embedded and equipped with the required software technology depth and have a strong influence on the open-source industry and innovators or hyperscalers. This enables them to act as a ‘one-stop shop’ for carriers’ transformation requirements,” says Manish Vyas, President, Communications, Media and Entertainment Business, and CEO, Network Services, Tech Mahindra.
The Internet of Things (IoT) is another area where telcos need a helping hand from the SIs. Developing IoT use cases demands a deep understanding of the enterprise ecosystem and telcos lack this. Typically, they have just provided connectivity solutions to the enterprises. They also struggle to integrate all devices as required by different use cases.
Further, the telcos are advancing to become digital service providers to meet the needs of their customers. This requires new skills like cloud computing, application integration, Big Data, automation, orchestration and network engineering. Specifically, the developing Open RAN ecosystem is software-centric and is based on the principles of virtualization and orchestration, which telcos typically don’t have. It also demands skills to put together products from different vendors and these are the areas where SIs excel.
The challenges in acquiring SI capabilities
However, developing SI capabilities is not without challenge for the telcos. A key challenge is that the telcos are geared to sell commodity services like voice and data. Typically, telcos lack the mindset to understand the enterprises’ problems and then develop a solution. The telcos’ processes and organizational structure is not geared for this. What further adds to the challenge is that there is no standard formula, every enterprise is different with its own unique requirement.
“It is not easy for telcos to develop SI capabilities as it means developing a new practice. It calls for a solutioning mindset. Telcos are used to selling commoditized services and typically don’t have the mindset to develop differentiated solutions for different enterprises and industry verticals,” explains Nandan.
Verizon, Orange Business Services (OBS), and AT&T are some of the telcos that have taken the lead in developing SI capabilities to address the demands of the enterprise segment. It is for this reason that we are witnessing a greater collaboration between CSPs and SIs.
There are primarily three models of engagement developing between the system integrators and telcos. The first is where the telco collaborates with the SI for bringing new services into the marketplace. Invariably, the system integrator plays a crucial role in this, and telcos lose the direct connection with the customer.
The second model is when the telco plays the dominant role and is the customer-facing partner. Telcos need this to bid for the large deals where they need to demonstrate the SI capabilities. Finally, the third model is when the telco works to build in-house SI capabilities to address the developing market opportunities.
The path a telco takes largely depends on its own ambitions, strategy and its position in the marketplace. Orange Business Services and NTT are examples of the third type, where the CSPs are developing their own SI capabilities.
“Carriers are engaging SIs in multiple ways – as solution providers, infrastructure partners and ecosystem enablers. In future, as networks become more flexible and software-driven, continuous integrators will be the key players in managing network lifecycle and launching new services while eventually evolving into trusted business partners,” says Vyas of Tech Mahindra.
As we advance, there is likely to be increased cooperation and collaboration between the SIs and CSPs. As a result, several models are likely to develop as the telcos and SIs try to find the right fit. The Indian telcos are also expected to collaborate with the SIs to grow their revenue from the enterprise segment. Airtel-TCS deal might just be the first of the many such deals in the Indian market as other service providers also start taking steps to acquire SI competencies to climb the value chain and address the enterprise segment’s demands.