Network Transformation

Disaggregation – Is it new?

I would argue that it is not new.  Telecom Operators know about it and commercial teams along with the technical teams have been working on this aspect for long now.

We have adopted it already because it makes commercial sense, let me give you an example:-

Initial Wireless Networks in India included voice core, microwave, backhaul and even the Routers required for the solution bundled together as one project. One can easily see why this happened:-

  • Operators were new to this and were afraid of the complexity
  • They wanted experts to be deciding the network solutions (and they lacked the experienced staff)
  • They were worried about the interworking of various pieces and their impact on performance.
  • They wanted one “Neck” to be hanged in case of problems; vendors like Ericsson, Nokia were responsible for end to end planning engineering and operations
  • Bundling things made it easy and they could compare the vendors on like to like basis.
  • They were saving themselves from hidden costs

So much so that they chose to buy antennas, cables, accessories, racks, power plant, batteries etc. all from one vendor.

Then as they developed expertise, they started realizing that some of these things can be a direct purchase; as the vendor is not really adding any value other than the markup (margin over margin). For example, none of them manufactured microwave antennas, they were buying from Andrew or equivalent, adding margin and passing on to the operator. There were also delivery challenges because of the involvement of multiple supply chain teams and a broken forecast process.

As operators started looking to lower the costs, they looked for big-ticket items that could be carved out of the contracts without any technical concerns. Meanwhile, the technical teams became stronger with the people with the right skills and expertize, people who could vouch for the quality of the solution even after the split.

On the other side of the spectrum, the vendors initially tried to protect their turf. They wanted to keep the whole thing to themselves, they pushed the suppliers like Andrew to give more discounts to meet the Operator demand while protecting their margins. They were able to postpone the inevitable but could not entirely stop it.

Suppliers like Andrew realized that they must protect margins and their markets and started reaching out to Operators. They educated the technical teams and commercial teams. Operators started demanding that vendors allow them and facilitate the direct purchase or cut prices and supply them with antennas at the rates they negotiated with Andrew directly. This did not justify the overheads the vendors were incurring in terms of inventory, logistics, and supply chain. They started to lose more money than they could digest.

Vendors realized that they must protect margins and dominance on their key products and they reluctantly let go of this space.

Disaggregation is just a new name of this age-old process. In my blog next week on network transformation, I will continue on this topic and share what are the key factors that weigh in favor of disaggregation.

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