Long term investment vs initial low-capex – it’s a tier-2 operators war
As consumers’ appetites for new, capacity-consuming personal and business applications grow, 24/7 broadband connectivity is crucial for maintaining and creating revenue-generating opportunities for operators and OTT providers alike, writes Janez Öri, the strategy and business development director at Iskratel.
These market conditions are placing great pressure on operators, as they race to expand their offerings and evolve their business models to meet the demand for ultra-fast broadband. For tier-2 operators looking to remain competitive and profitable against their tier-1 rivals, the pressure is even greater – so much so, that many are straying from their strategic investment plans and investing in low-capex products. But is this necessarily the right path to take for long-term gains?
If operators want to outperform their rivals in service, quality and price, it is crucial that they put long-term investment and upgradability at the forefront of their strategy. With this approach, they can prolong their assets as they age, maintain a fixed cost infrastructure and painlessly introduce new services as consumer demand grows.
A tempting offer
The long-term investment vs. initial low capex debate has emerged and grown as the telco industry becomes increasingly competitive. Tier-2 operators are continuously forced to upgrade their equipment to keep up with rivals and vendors are exploiting this by offering initial capex discounts. And with initial advantages such as early savings and increased productivity metrics, this is enough to turn any operators head from their long-term investment plans.
But although an initial discount may seem like a quick-fix for keeping costs low, it may end up costing operators between 300 and 800 percent more than they initially saved in the long run due to the products not being future-proof. This results in them being left behind with inferior, non-upgradeable technology, thus missing out on introducing new revenue-generating services. And as operators get caught in the cycle of upgrading their network with new products, the initial low price will back-fire as opex and total cost of ownership (TCO) rises, decreasing their ability to keep up with connectivity demands.
Caught in a trap – can’t walk out?
While operators may be aware of what is at stake – keep up with demand or go bust – they aren’t always aware of the other options they have when buying new equipment.
With budgets tightening in businesses across the world, its only natural that operators’ first instincts are to save money – but investing in cheaper hardware isn’t a sustainable plan. Instead, it will often lead to a downward spiral of buying cheap ACIS-based hardware repeatedly before seeing a return on previous investment. This barely keeps operators afloat, let alone positions them to outperform their tier-1 rivals.
As an alternative to cheaper price tags, operators can wait for the market to mature, for standards and technologies to develop and focus their efforts on offering cheap and low-end services. The obvious drawback of this approach, however, is the risk of missing opportunities to launch new services and generate the highest user satisfaction.
Another option is to reach out to major tier-1 vendors and buy premium, latest-generation solutions instead of bottom-dollar products. The con? These products often come in low quantities and with exclusive price tags, making it hard to keep up with supply and demand.
The escape plan
The good news is there is another option. When looking to stay ahead of the game, operators must consider a forward-thinking strategy, which ensures they are agile enough to move with the times – and the key to doing so lies within software-based, programmable hardware.
By choosing broadband solutions which are software-upgradable for future needs, services and protocols, operators can consider upgradeability without expensive hardware replacement and yield a longer investment cycle. This approach enables them to not only avoid vendor lock-in but also empowers them to increase their offering to new revenue-generating services – even those unforeseen at present – in the future. And while software programmable hardware may be 10% more expensive, it allows operators to miss up to two hardware-upgrade cycles for a fraction of the initial platform price, delivering unified network management and lowering opex by up to 70%.
By trading the instant gratification of cost saving for a fixed cost structure, operators will be rewarded with lower TCO, less upgrade cycles and reduced churn – and with the means to outperform their Tier-1 competitors in service, quality, and price.