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Authors: Mark Newman, Chief Analyst Justin Funnell, Contributing Analyst

Editor: Dawn Bushaus, Managing Editor

April 2021

Sponsors:

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Contents

03 05 08 The big picture Section 1: Global trends in Section 2: Do investors value telco OpEx telco transformation?

14 20 26 Section 3: Inside the OpEx Section 4: Impact of new Section 5: Make it happen – black box – Comparing technology on telco OpEx Strategies for reducing costs expenses

28 Additional features & resources

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The big picture

Communications service providers (CSPs) have grown comfortable talking to their investors about digital transformation programs, but they have a tough time explaining how transformation will impact their bottom lines. This has made investors cautious about building assumptions into CSPs’ future financial performance.

There are three main drivers for telco Key telco operang expenses transformation: delivering a stronger customer experience, generating new revenues and achieving efficiency gains. In this research we are focusing on

efficiency gains because they are the ENDUSER EQUIPMENT PEOPLE & CONTENT easiest way for operators to demonstrate SALES & MARKETING Employees’ salaries Handset subsidies & other the benefits of transformation. device/equipment sales Customer service, Temporary/contract retail, adversing staff & consultants Content & revenue sharing Importantly, we have chosen to focus on OpEx rather than CapEx. There is already plenty of research available about the evolution of the network, which makes up the majority of CapEx. However, little information is available about telco OpEx trends, even though operators spend close to $1 billion annually. NETWORK & GENERAL & IT OPERATIONS ADMINISTRATIVE Operaon & maintenance ENERGY & SITE OpEx falls into two categories: direct Building rental, of the network Power consumpon office furniture, Internal & customers’ & site rental and indirect costs. Direct costs are supplies, etc. IT infrastructure expenses incurred to provide services, & apps while indirect costs are general expenses to keep the business operating.

When it comes to items such as the cost to acquire subscribers – an essential expenditure if operators are to retain or grow market share – it is extremely INTERCARRIER/ REGULATION WHOLESALE NONOPERATING difficult to make meaningful cuts. To Spectrum, franchise, EXPENSES Network sharing, concession, etc. lower OpEx CSPs are more likely to network rental/lease, Finance, depreciaon interconnecon/ & amorzaon, tax focus on indirect costs such as network roaming and IT operations or reducing the number of employees and contractors across the organization. TM Forum, 2021

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The big picture

In this report, we show the status of Read this report to understand: current telco OpEx through detailed However, it will become analysis of publicly available financial Which categories make up telco OpEx results from five CSPs operating in increasingly difficult for Why CSPs and their investors use Europe, the Middle East and Africa: operators to achieve EBITDA (earnings before interest, BT, MTN South Africa, Ooredoo, taxes, depreciation and Orange and Telenor. We have used year-on-year cost amortization) margins as a key the data published by these savings through performance indicator companies to highlight the most How CSPs have been cutting important categories of OpEx and generalized, costs up to now, and why new show their expenditure in these areas department-by- technology will impact costs in the as a percentage of total revenues and future total OpEx. department budget cuts, particularly companies Which CSPs are cost-cutting leaders Our results reveal that there is plenty How investors feel about CSPs’ of scope for OpEx savings, that have already made efforts to transform, and whether particularly within European CSPs’ large cuts. They will they believe operators can cut businesses. Some companies have costs further already made substantial progress need to embrace new How BT, MTN South Africa, reducing OpEx. Telenor and KPN are technologies like cloud, Ooredoo, Orange and Telenor leading the way, consistently meeting categorize OpEx, and how their and exceeding ambitious cost-savings automation, machine spending compares targets. This has been achieved learning and AI to How much CSPs collectively spent through general belt-tightening on CapEx and OpEx in 2020 across the business rather than reduce OpEx further specific initiatives. How deployment of cloud, AI and and impress investors. automation will impact OpEx

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Section 1 Global trends in telco OpEx

For the first two thirds of its 30-year history as a dynamic, competitive market, the telecommunications sector was firmly focused on revenue growth rather than operational efficiency. However, over the last 10 years revenue growth has proven elusive, forcing communications service providers (CSPs) to focus increasingly on cost management and, more recently, cost cutting.

With customers requiring faster Comparison of selected CSPs’ revenues & OpEx (in US billions) speeds and greater reliability to satisfy 2018 2019 2020 their insatiable demand for Revenue OpEx Revenue OpEx Revenue OpEx connectivity, it has never been an option to reduce investment in the America Movil 49.2 35.2 48.5 33.4 49 32.8 network. Furthermore, investors have AT&T 170.8 114.1 181.3 122 171.8 117.4 rewarded operators that have invested Axiata Group 5.8 3.8 6 3.2 5.9 3.2 early and heavily, be it in deploying Bell Canada 18.6 11.1 19 11 18.2 10.3 fiber or committing to LTE and 5G. Bharti Airtel 11.5 7.4 11.1 7.5 11.4 5 BT 33.1 22.6 32.7 22.4 32 21.6 CSPs have focused on reducing OpEx Charter Communications 43.6 27.6 45.8 28.9 48.1 28.5 rather than CapEx because a large China Mobile 113.5 71 114.9 69.3 117.1 72.8 proportion of CapEx (around 60%- China Telecom 58.1 42 57.9 39.8 60.6 41.7 90%, according to our estimates) is on China Unicom 44.8 31.7 44.7 30.2 46.5 31.9 the network. Furthermore, OpEx is Comcast 94.5 64.3 108.9 74.7 103.6 70.8 two-and-a-half to three times higher Deutsche Telekom 90.3 62.5 96.1 61.9 120.6 73.2 than CapEx, so there is more scope to KDDI 46.4 32.5 46.8 32.3 48.2 32 identify cost-cutting opportunities. Korea Telecom 20.7 16.6 21.5 17.6 21.1 16.7 KPN 6.7 4 6.5 3.8 6.3 3.4 EBITDA margins MTN Group 9 5.7 10.1 5.9 12 7 Comparing trends in OpEx between NTT 108.7 81.2 109.4 81.5 109.6 80.8 operators and identifying year-on-year Orange 49.4 33.9 50.4 35.1 50.5 34.8 trends can be difficult because Rogers Communications 12 7.2 12 7 11.1 6.2 expenses include disposals and SK Telecom 14.9 10.9 15.7 11.2 16.4 11.4 acquisitions which can end up Swisscom 12.6 8.1 12.4 7.7 12 7.3 distorting the overall picture. A better Telefónica 58.1 39.3 57.8 37.5 51.4 34.7 measure of OpEx trends is operators’ Telekom Indonesia 9.1 4.9 9.4 4.9 9.3 4.5 EBITDA (earnings before interest, tax, Telekom Malaysia 2.9 2 2.8 1.9 2.6 1.6 depreciation and amortization) TIM Brasil 3 1.9 3.1 1.9 3.1 1.5 margins. The table opposite shows T­Mobile US 43.3 30.9 45 31.6 68.4 41.1 annual revenue and operating Verizon 130.9 83.5 131.9 84.7 128.3 79.5 expenses for 30 CSPs from 2018 to Vivo 11.9 7.3 11.2 6.6 8.4 4.9 2020, calculated by subtracting Vodacom 5.8 3.5 5.8 3.6 6.1 3.4 EBITDA from total revenues. Vodafone 65 44.5 61 41.2 62.8 42.6 Total 1,344.30 911.1 1,379.70 920.3 1,412.10 922.6

TM Forum, 2021

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Section 1

Expenses amount to between 48% and degree of caution. The savings of cutting $10 billion in OpEx. While 79% of the operators’ total revenues. achieved in one part of the business Verizon’s financial results show Over the last five years, 14 of the 30 may be wiped out by higher costs in progress, the ride has been bumpy, companies have seen their EBITDA another. This seems to be especially resulting in overall savings so far that margin rise by more than five true in IT and network departments, are only a fraction of the goal. percentage points (and conversely, where operators have made their expenses fall by more than five reasonable progress in delivering Several European CSPs have percentage points). Eleven of the efficiency gains. committed to OpEx cuts in the period companies experienced a rise of zero from 2021 to 2023, and executives to five percentage points in their For example, speaking at an investors’ indicate this will be driven by EBITDA margins. The EBITDA margin conference in January 2021, Verizon digitization. We will look more closely declined for only five companies. Consumer CEO Ronan Dunne said the at which OpEx categories operators company is on track to meet its five- are targeting for these cost-cutting Overall the operators’ combined year goal (announced four years ago) initiatives in Section 3. revenue grew by a compound annual growth rate of 2.5% between 2018 and 2020, while OpEx grew by .63% Verizon’s quest for OpEx savings (in US billions) per year. In 2018 the combined OpEx of these companies ($911 billion) was $86 equivalent to 67.7% of their combined $85 revenues of $1,344 billion. By 2020 it $84.7 $84 amounted to 65.3% of their total $83.5 revenues of $1,412 billion. $83

We can conclude that operators are $82 sensibly managing their cost bases. $81 $81.0 However, breakdowns of direct and $80 indirect costs, which are not publicly $79.5 available, would provide greater $79 insight. For example, we could $78 understand the extent to which Goal: $10 billion in savings over 5 years operators have been able to deliver $77 cost savings across their IT estates $76 (mainly indirect costs) or whether 2017 2018 2019 2020 there is a downward or upward trend TM Forum, 2021 in subscriber acquisition costs (direct costs). European CSPs’ plans to cut OpEx Future OpEx trends A growing number of CSPs are committing to cutting OpEx overall, Next wave of cost-cuǞng program aims "Scale Up" program aims to and they are confident that new Plans to achieve digital technologies and ways of for indirect cost savings of more than achieve indirect cost savings of working can drive efficiency gains. They have been less specific about €250m £1bn €1bn precisely where these costs cuts will between 2021 by 2023 ($298m) and 2023 ($1.4bn) ($1.2bn) occur, however. Further “belt- includes a 20% net reduction tightening” measures and eradication in operating costs in Europe over the next five years of mid-level management roles may Targeng offer limited savings, so operators Aiming for likely will need to depend on successful automation initiatives. CHF100m kr2bn in cost As we'll see in Section 2, investors in cost savings in ($234m) savings ($107m) 2021 and 2022 by 2023 have learned to treat operators’ bold statements about OpEx cuts with a TM Forum, 2021

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Section 1

New technology have a snapshot of operators’ current not all CSPs release financials and some spending on CapEx and OpEx to set numbers are overstated because in As CSPs transition from hardware- the stage. some cases sales of devices and centric to software-centric businesses reporting of wholesale revenues may and migrate IT and network workloads The graphic below shows estimates of represent double counting. to the cloud, their costs will be global telco spending based on TM impacted. Spending will shift to OpEx Forum’s analysis of CSPs’ 2020 financial In the next section, we’ll look at the with increased use of public cloud results plus IDC’s estimate of $1.6 role of investors and whether they services, and automation will reduce trillion in total global telecoms operator believe CSPs can successfully make staff costs. We’ll discuss these changes revenue for 2020. This figure varies OpEx cuts. in detail in Section 3, but it is helpful to from $1.5 trillion to $1.7 trillion because

2020 telecoms revenue & spending esmates

$272 billion $1.6 trillion Global telecoms operator (17% of total revenue) revenue in 2020 Total Telco CapEx

Network CapEx $163 billion Revenue from $48 billion (60% of total CapEx) cloud-based services Costs are divided between access <$16 billion ($79 billion-$85 billion) (17.5% of total CapEx) This is a TM Forum esmate and transmission IT CapEx (hardware/ based on revenue breakdowns ($59 billion-$65 billion) servers, soware from a limited number of licenses and large operator groups data centers)

Spending on people Spending on energy & sites $224 billion $67 billion $104 billion (14% of total revenue) (4.2% of total revenue) (6.5% of total revenue) Combined IT & Network OpEx Up to $100 billion relates to staff Costs for passive network working in network or IT infrastructure, which is not owned by CSPs and therefore is OpEx

Note: Figures are sourced primarily from TM Forum’s analysis of CSPs’ 2020 financial results but also include IDC’s esmate of $1.6 trillion in total global telecoms operator revenue for 2020. All figures are esmates, and CapEx and OpEx figures are averages of high and low percentages of total spending. TM Forum, 2021

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Section 2 Do investors value telco transformation?

Telecoms investors span public and private capital markets, equity and debt, and different geographies. They use a variety of strategies and hold diverse opinions that tend to fluctuate, with capital markets often extrapolating from recent experience. However, the average view is expressed in share prices and reflects the information and expectations published by communications service providers (CSPs) and their suppliers, as well as forecasts shared between investors and published by journalists and industry analysts.

During recent decades, investors have Reducon of staff at select Euroepean telcos from 2010 to 2019 learned to expect cost reductions, with processes gradually becoming more 120 efficient particularly at telcos that were privatized in the 1990s. For example, Deutsche Telekom had 201,060 100 employees in its German division when the group was privatized in 1996, but by the end of 2019 the number had 80 fallen to 60,501.

CSPs also have saved by cutting overlapping functions in areas such as 60 sales, marketing, customer care and operations in fixed-mobile convergence deals (initially by the integrated telcos 40 and more recently by cable-mobile deals, led by European investment group Altice). So, the savings generated 20 through digital transformation is really just the latest form of cost cutting in a

multi-decade process. 10

Historically, telco investments have 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

been disappointing, with the sector’s TNOR DT ORAN TI KPN TELA TELE2 performance lagging the rest of the stock market over the last 20 years. TM Forum, 2021 (Source: Thomson Reuters Datastream)

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Section 2

There are exceptional stocks that have Telenor’s investment story bucked this trend – Verizon, for example, has shown steady gains in share price. But overall, cost cutting by CSPs has failed to lead to share price outperformance. 3% This is partly because cost savings are OpEx down usually offset by a mix of negative per year in factors including competition, FY2017 & FY2018 regulatory pressure, rising CapEx and occasional large spectrum costs, leading to disappointing revenue and earnings trends overall. Few telco stocks have managed to offset these headwinds through cost cutting – even the exceptional level of cost cutting at 12% 6% Altice Europe slowed after two years. Share price up EBITDA up Since February 2017 per year in FY2017 & FY2018 Telco investors have learned from experience TM Forum, 2021 that cost cutting alone is not usually enough to Telenor leads the way Telenor announced a plan to cut OpEx drive a share price up overall by 1% to 3% annually from In February 2017, Norway-based 2018 to 2020 and to grow revenue over the long term. Telenor, which also operates in Asia, organically by low single digits. This Despite this, investors highlighted the digital transformation guidance may not seem like much, but opportunity in a way other telcos had it was a big deal – few CSPs had were positive about not, with CEO Sigve Brekke presenting managed to grow revenue and shrink digital transformation a three-year plan at the company’s costs at the same time over a multi- Capital Markets Day. As a result, year period. when it emerged as a Telenor became known in the stock new investment theme market as the leader in transformation So, this guidance suggested a break – and the benchmark to use for with the past. Telenor got off to a good in 2017. assessing the opportunity for other start, with OpEx falling a net 3% per CSPs. year in 2017 and 2018. Underlying revenues were up slightly, and earnings Malaysian operator group Axiata was Unfortunately, Telenor’s investment before interest, taxes, depreciation and one of the first to discuss digital story lost some momentum in 2019, amortization (EBITDA) was up 6% transformation with investors. CEO with slower net cost cutting as network annually. Tan Sri Jamaludin Ibrahim outlined a costs rose in Asia because of increasing plan in late 2016 to cut $355 million in energy prices and network expansion At this time, European telcos were costs from fiscal year 2017 to 2019, costs. But the stock remains up 12% known for flat or declining EBITDA. which amounted to 17% of 2016’s since February 2017 compared to a The Telenor share price duly rose 46% OpEx base. 25% decline in European telco stocks over the first year of the company’s overall during the same period. plan, while the wider telco sector index Axiata saw two components to Telenor’s transformation plan was flat. This increased the credibility transformation: digitization of therefore has been a success from a of digital transformation as an processes followed by the introduction telco investment point of view, and investment theme, and analysts and of new services such as mobile changed investors’ views about the investors in Europe started to ask advertising, digital commerce and potential for cost cutting to drive share other CSPs if they had similar plans. digital entertainment. However, the price performance. company did not publicize many details at the time.

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Section 2

Spark New Zealand’s Spark’s investment story share price climbs

In 2011, Spark New Zealand was spun off as the mobile arm of Telecom New Zealand. Without a fixed-line 1% network to lean on, Spark has been OpEx down forced to run its operations more per year from efficiently to remain competitive and FY2017-2020 grow earnings. This pressure led to early digital transformation.

In June 2017 Spark CEO Simon Moutter announced a plan to grow annually compounded revenues by up to 2% from fiscal year 2017 to 2020 25% 3.1% and lift EBITDA margins into the low 30% range, from 28% in 2016. The Share price up EBITDA up company planned to decrease labor Since June 2017 per year from FY2017-2020 costs rather than continue its recent trend of increases.

Spark broadly met the three-year TM Forum, 2021 financial targets: Revenue was flat over the period, and EBITDA grew 11%. Labor costs were down 2.4% a plan and slowed in fiscal year 2020. 3.1% per year. OpEx fell a net 1% year, and other indirect OpEx was Spark stock is up 25% since June annually over the three years, with down 6.9%. Like Telenor, cost savings 2017, a significant achievement for a the number of employees declining were greatest in the first year of the stock with no top-line growth.

Vodafone finds savings stock performance has been stock price was under significant disappointing, down 36% since May pressure, halving over the prior two British multinational operator 2018, whereas the sector is down 20%. years as the threat from the Vodafone Group has been successful government broadband network, with its digital transformation strategy, Vodafone’s revenue trends have been NBN Co, grew. but the company’s share price has not disappointing due to price competition in risen as much as Telenor’s or Spark’s. In Spain and Italy and more recently the Telstra CEO Andrew Penn May 2018 Vodafone announced that impact of Covid-19. Furthermore, the announced a three-year plan to cut $9.5 billion of its annual operating company’s plan was not such a positive annual OpEx by about $762 million, costs were in areas open to savings surprise to investors as Vodafone had aiming to cut two layers of from digitization. The company already cut costs significantly from 2016 management, reduce staff by 8,000, followed up in November 2018 with an to 2018. Because investors understood reduce customer service calls by two explicit plan to cut OpEx in Europe by the company’s transformation story, thirds and trim product offerings approximately $1.4 billion a year by some level of continued cost cutting was from 1,800 to just 20. This was the fiscal Q3 2021. already priced into Vodafone’s share most aggressive transformation plan price by May 2018. announced to date, reflecting the Vodafone cut it by about $475.5 million particularly strong revenue pressure in Q3 2019 and Q3 2020, with Group Pressure down under on the Telstra business. EBITDA margins rising 1.5 percentage points as a result and EBITDA Australian incumbent CSP Telstra OpEx fell a net 3% per year over the remaining flat despite 2% revenue announced its transformation plan in first two years of the plan, and erosion per year. Unfortunately, the June 2018. At the time, the company’s revenues fell a larger 5% annually.

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Section 2

Profits therefore have continued to fall, transformation leads to fundamental investors to judge whether the but at a slower pace than expected by change in how telcos are run, their program can last beyond that, which investors prior to June 2018. cost bases and relationships with holds them back from buying telco customers, investors have not stocks with more enthusiasm and in Telstra’s stock has climbed a creditable changed how they view the sector for turn limits the impact of the 13% since June 2018, despite this several reasons. transformation theme on share prices. considerable revenue pressure. Investors learned that ultra-aggressive Firstly, bond yields have continued to Other factors continue to dominate transformation still wasn’t enough to fall in recent years, leading investors to the outlook for telco earnings, in drive profits up when revenues were favor growth stocks (companies with particular the prospect (or not) of still falling significantly, but it was significant revenue growth) over revenue growth. Few operators are enough to turn the share price around companies with low growth but higher growing, and Covid-19 has weakened in this case. cashflow like telcos. The good news is revenues, meaning that despite many this may be about to change, depending CSPs realizing three years’ worth of on how fast the global economy digitization in just six months as recovers from the pandemic. As the customers work from home, EBITDA Several more operators outlook for economic growth improves, didn’t surge. The $81 billion recently have since explained long-term bond yields would rise, with spent on 5G spectrum in the US has investors then paying less of a premium also reminded investors that years of their own digital for growth stocks and relatively more hard-fought cost cutting benefits can transformation cost- for other stocks like telcos’. be spent quite quickly elsewhere in the business. cutting opportunity to Secondly, the investor experience with investors – and it has CSPs’ cost transformations is still quite Finally, few CSPs guide an overall net stock specific. Maybe Telenor was a decline in OpEx the way Telenor did. become a component of special case in that transformation AT&T plans $2.37 billion run-rate the investment case for allowed the company to move savings by fiscal year 2022 on a gross departments to its lower-cost Asia basis, meaning before other cost most operators. This is operations. Telstra and Spark are not factors. BT targets $1.38 billion gross particularly the case on the radar for many investors, and savings by fiscal year 2023, while DT Vodafone’s stock is down since aims for $1.78 billion gross saving and with CSPs facing a weak unveiling its plan. Orange for $1.42 billion net savings in revenue outlook, with indirect OpEx. The savings described Also, tracking the progress made on are significant but not quite enough for cost cutting the only cost cutting is not straightforward for the companies to guide an overall way to grow earnings. investors. As we’ll see in the next decline in costs. Hopefully some of section, most operators do not break these factors will improve as the out costs, typically reporting only three economy recovers. or four categories such as direct costs, For example, transformation is a core labor costs and other OpEx. Underestimating part of the outlook for KPN and How costs are allocated between these Orange, and AT&T has also discussed potential different buckets is obscure, varies by transformation-led cost cutting in the company and can change. Continued Interestingly, the CSPs with the US. In contrast, CSPs with somewhat changes in accounting standards have poorest revenue outlook appear to be faster-growing businesses, such as also muddied the water significantly, transforming the most. This is evident Comcast, Charter Communications, T- making analysis of cost trends over the in stock market consensus. The Mobile US and Verizon, are much less last three years difficult. graphics on page 12 show consensus vocal about their cost cutting plans. forecasts for EBITDA margin This lack of visibility also makes it expansion for some of the largest Little change harder to gauge how much more cost quoted telcos globally, compared to cutting potential remains. Despite all this, the digital forecasts for revenue growth. Transformation leaders like Telenor transformation process has not had as have been extending the program three much impact on investors’ views of the years or so. But it is very difficult for telecoms sector overall. While

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Section 2

Consensus forecasts for EBITDA margin growth vs. revenue growth

5.00

Bhar Airtel

4.00

3.00

KPN Comcast 2.00 Charter Comms Telefónica BT AMX Telenor 1.00 Vodafone MTS Orange Vodacom Telus AT&T PT Telkom BCE Inc Deutsche Telekom TMUS EITDA margin change (pp) 2022e vs. 2020 vs. 2022e (pp) change margin EITDA 0% NTT Verizon -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% MTN China Mobile Sobank (1.00)

(2.00) Revenue CAGR 20-22e

Consensus forecasts for EBITDA growth vs. revenue growth 2020-22 20%

18% Bhar Airtel

16%

14%

12%

Comcast 10% TMUS

8% Charter Comms BITDA CAGR 20-22ee CAGR BITDA 6% Telus PT Telkom MTN MTS Deutsche Telekom 4% Vodacom BT Vodafone BCE China Mobile KPN Telenor Sobank 2% AMX Orange Verizon NTT Telefónica AT&T 0%

-2% 0% 2% 4% 6% 8% 10% 12% 14% 16%

Revenue CAGR 20-22e TM Forum, 2021

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Section 2

CSP margin growth should naturally Evoluon of telco transformaon programs correlate with revenue growth, due to the operating leverage of telecom networks – that is, a high mix of fixed costs. Indeed, analysts expect decent margin expansion at the relatively high-growth US cable companies. Cultural or business model shi However, the operators with the highest expected margin growth are End-to-end, those with the worst growth company-wide prospects. These forecasts largely transformaon reflect guidance from the companies Funconal themselves and show that CSPs’ cost transformaon transformations are examples of necessity being the mother of Budget assurance invention. programs of transformation Complexity (quick wins) Risks & rewards As many CSP executives have Pressure on profitability described, digital transformation is TM Forum, 2021 (source: A.T. Kearney) time consuming, painful and risky. Consultancy A.T. Kearney sees transformation as a four-phase the other operators in the sector, once Transformation resets the relationship process, during which operators they are ready to commit. with the end customer and gradually become more confident and disintermediates factors that have ambitious with their digital Unfortunately, cost cutting alone likely undermined ARPU in the past, transformation plans. Operators start will not be enough to drive telco share particularly dealer-driven churn, bill with projects to meet divisional cost prices up significantly without a shock and very poor customer service. targets and end with a complete recovery in revenue growth. In this change in the way the business is run. way, a transformation project that lifts There is still potential to lift ARPU, for Each stage is more challenging and ARPU and drives sustainable revenue example by upselling customers to requires a bigger time commitment growth is going to be worth more to unlimited data bundles, for which from the leadership team. the stock price than all the work done customers appear willing to pay a on cost transformation. premium. If digital transformation Executives at companies with flat or helps deliver ARPU growth and declining revenues are incentivized to Right now, digitization does not appear changes the telco business, then it will take the risk, but if the business is to be lifting revenues, leaving CSP change the telco stock price as well. growing quickly, there is less reason do executives to focus on costs. But so. Ultimately, this is a bullish perhaps it is too early for revenue In the next section we’ll look more conclusion, suggesting significant benefits to emerge. closely at the categories that make up potential for cost cutting for most of CSPs’ OpEx costs.

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Section 3 Inside the OpEx black box: Comparing expenses

It is difficult to identify and understand all the categories that make up communications service providers’ (CSPs’) operating costs because very few companies break down OpEx when reporting financial results. And if they do, they often categorize the expenses in different ways. In this section, we analyze OpEx reports from five companies operating in Europe, the Middle East and Africa to highlight key categories and trends.

The graphics on pages 15 and 16 Key telco operang expenses show OpEx categories as a percentage of total revenue for BT, MTN South Africa, Ooredoo, Orange and Telenor. Ooredoo, Orange and Telenor are active in several ENDUSER EQUIPMENT PEOPLE & CONTENT SALES & MARKETING countries and regions and represent Employees’ salaries Handset subsidies & other device/equipment sales Customer service, a wide range of developed and Temporary/contract Content & revenue sharing retail, adversing emerging markets. MTN Group also staff & consultants operates in many countries, but the financial data analyzed in the report is only for its South African operating company. BT operates only in the UK.

Categorizing OpEx NETWORK & GENERAL & IT OPERATIONS In addition to looking at the companies’ ADMINISTRATIVE Operaon & maintenance ENERGY & SITE Building rental, of the network reported OpEx, we wanted to map their Power consumpon office furniture, Internal & customers’ & site rental spending to the direct and indirect supplies, etc. IT infrastructure & apps operating costs we identified in our research (see the Key telco operating expenses graphic repeated from the report's introduction).

INTERCARRIER/ REGULATION WHOLESALE NONOPERATING Spectrum, franchise, EXPENSES Network sharing, concession, etc. network rental/lease, Finance, depreciaon interconnecon/ & amorzaon, tax roaming

TM Forum, 2021

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Section 3

The UK’s largest telecoms Middle Eastern & Asian operator with fixed, mobile and South Africa-based converged converged telecoms company TV businesses; as part of its TV telecoms company with headquartered in Qatar, with business, the company has operations in 23 countries; largely additional operations in Algeria, acquired extensive sports rights; a mobile operator but recently has Indonesia, Iraq, Kuwait, Myanmar, it is also a strong player in B2B expanded into broadband Oman, Singapore & Tunisia; has services nationally and connectivity and mobile money experienced significant growth internationally via BT Global over the last six years, transforming Services 19,288 from a single market operator in employees Qatar to an international 105,300 communications company with a employees 273.4 million global customer base subscribers 30 million (32 million in South Africa) 15,960 consumer subscribers employees $11.7 billion 1 million 2020 revenue 115 million enterprise customers ($3.2 billion for South Africa) customers $29.9 billion $7.9 billion 2020 revenue 2020 revenue

OpEx as a percentage of MTN South Africa's OpEx as a total revenue OpEx as a percentage in 2020 percentage of of BT's total Oooredoo's revenue in 2020 revenue in 2020

Handsets & other accessories 20.0% Interconnect 3.4% Employee salaries & 11.3% Labor 20.9% Roaming 1.0% associated costs Commissions 4.6% Product costs & sales 19.5% Markeng costs & sponsorship 2.4% commissions Government & regulatory costs 0.4% Commission on cards 2.4% Payments to telecoms 7.7% VAS/digital services 1.3% Legal & professional fees 0.6% operators revenue share Rental & ulies 0.4% Property & energy costs 4.4% Service provider discounts 2.6% Allowance for impairment of 1.1% Network operang & IT costs 3.9% Network & IS maintenance 9.2% trade receivables TV rights 3.8% Markeng 2.1% Repairs &maintenance 0.3% Provision & installaon 2.6% Staff costs 6.6% Other expenses 2.2% Outpayments & interconnect 7.6% Markeng & sales 1.3% Other OpEx 9.6% charges Other operang costs 2.2% TM Forum, 2021 Regulatory 8.6% TM Forum, 2021 Rentals and ulies (network) 4.0% Network operaon & maintenance 7.9% Cost of equipment sold & 9.1% other services Provision for obsolete & 0.1% slow-moving inventories

TM Forum, 2021

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Section 3

Converged telecoms group Converged operator headquartered in France with headquartered in Norway with operations in 26 countries; additional operations in operates fixed and mobile Bangladesh, Denmark, Finland, networks in France, Spain, Poland, Norway, Malaysia, Myanmar, Romania, Belgium, Slovakia and Pakistan, Sweden & Thailand; Moldova; company’s African provides primarily mobile services footprint takes in many French- in Asia and fixed, mobile and TV speaking countries in West Africa services to consumers and and North Africa; also a leading enterprises in Europe. providing of global telecoms 20,044 services to businesses through the employees Orange Business Services division. 182 million 142,150 subscribers employees $14.8 billion 266 million 2016 revenue subscribers $50.5 billion 2019 revenue

OpEx as a percetage of Telenor's total OpEx as a revenue in 2016 percentage of Orange's total revenue in 2019

Staff & personnel 10.1% Sales & markeng 8.3% Operaon & maintenance 5.3% Labor 16.1% Regulatory 4.1% G&A 2.6% Other 9.8% Real estate 3.6% Note: financial data is from 2016 – Telenor does not IT&Network 5.1% typically break down OpEx in its financial results but did so in 2016; numbers are likely to have changed because CRM 1% of aggressive cost-cuǞng parcularly reducing staff A&P 1.6% TM Forum, 2021 Others 2.9% Enterprise IT 3.1% Intercarrier, sales and markeng, content and equipment 27.4% Africa and Middle East 5.9%

Note: data is a snapshot of operang costs for 2019 presented during a financial results presentaon in 2020 TM Forum, 2021

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Section 3

Globally, telecoms operators are The graphics below show how the revenues, while the second shows becoming increasingly confident about three companies that reported 2020 expense categories as a percentage of making commitments to future OpEx OpEx data compare when it comes to total OpEx. We have opted to exclude savings across these categories spending in the categories we’ve Orange and Telenor from the charts enabled by digitization programs, defined. We recognize that this data is because their data is not current, but restructuring and other initiatives. In imprecise because some of the we have included individual tables on some cases, CSPs make specific expense categories used by the the next page to show the breakdown reference to savings achieved through operators do not correlate with ours. of their spending in the designated adoption of cloud-based technologies OpEx categories in 2019 and and automation. The first graphic shows expense 2016, respectively. categories as a proportion of total

Comparison of TM Forum-idenfied OpEx categories as a percentage of total OpEx in 2020

100% 7.3% 8.1% 5.9% 15.7% 13.7% 11.6% 80% 15.1% 14.7% 7.2% 31.3% 60% 13.1% 15.6% 8.4% 40% 5.8% 6.6% 15.6% 34.9% 7.0% 20% 31.7% 19.4% 10.9% 0% BT MTN South Africa Ooredoo

People Energy & site End-user equipment and content Sales & markeng Intercarrier/wholesale Regulaon Network & IT operaons Other

TM Forum 2021

Comparison of TM Forum-idenfied OpEx categories as a percentage of total revenue in 2020 80% 70% 4.8% 60% 3.9% 9.6% 4.7% 7.7% 8.0% 50% 9.2% 0.4% 40% 20.8% 4.4% 8.6% 9.5% 7.6% 30% 3.8% 4.9% 4.4% 20% 9.1% 21.3% 4.1% 10% 20.9% 11.3% 0% 6.6% BT MTN South Africa Ooredoo

People Energy & site End-user equipment and content Network & IT operaons

Sales & markeng Intercarrier/wholesale Regulaon Other

TM Forum 2021

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Section 3

People costs in different areas, the expenses Telenor's spending incurred to employ staff are often the categories as a percentage Staff costs vary in the companies most closely scrutinized. However, of total OpEx in 2016 analyzed, from 7% at MTN to 21% at among the companies we researched, BT. It is the biggest single OpEx only Telenor disclosed this kind of data. category for many companies, although in some cases it is second to During its 2017 financial results 26% 27% spending on sales and marketing. presentation, Telenor indicated that it spent a total of $5.2 billion on OpEx. Comparisons among operators are not The graphic opposite shows the type of always accurate because in some cases expenses as a percentage of total OpEx. figures include temporary staff and The data, which was difficult to consultants. Numbers also may vary correlate with the company’s 2016 11% based on CSPs’ retail and distribution published OpEx data, reveals that strategies. For example, companies spending on sales and marketing was 22% operating in developed markets are nearly 30% of total OpEx compared to 14% more likely to have their own shops – just 22% in 2016 when staff costs were and therefore staff – than those in separated. Combined network and IT developing markets. spending comes to 28% of total OpEx in Staff & personnel 2017, which is double the cost bases Sales & markeng It would be useful for CSPs to show that separates staff costs. This indicates staff costs by department. Indeed, Operaon & maintenance that staff costs represent around 50% when operators consider how to cut Regulatory of total network and IT costs. Other

TM Forum, 2021 Orange Group’s spending in TM Forum­identified OpEx categories in 2019 Telenor's spending categories Spending as a percentage Spending as a percentage as a percentage of total of total revenue of total OpEx OpEx in 2017

People 16.1% 23.2% 14.4% Network & IT operations 5.1% 7.3% 21.5%

Other indirect costs 14.6% 21.1% 12.3% Other indirect African & Middle East costs 5.9% 8.5% 8.2% Other direct costs 27.4% 39.7%

TM Forum, 2021 8.2% 20.6% 7.4% Telenor’s spending in TM Forum­identified OpEx categories in 2016 7.4%

Spending as a percentage Spending as a percentage Sales of total revenue of total OpEx Customer Management Markeng People 10.1% 27% IT Sales & marketing 8.2% 22% Support Network Regulation 4.1% 11% Regulatory Network & IT operations 5.2% 14% Other

Other 9.7% 26% TM Forum, 2021

TM Forum, 2021

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Section 3

Globally, most operators are reducing costs wherever possible in order to are making commitments to switching staff annually unless they have acquired delay recognizing expenses and to renewable energy sources. other businesses or are expanding into because investors have traditionally a new markets such as pay television. As used EBITDA margins as their In mobile networks, most energy noted in Section 2, 10 of 14 CSPs cut preferred way of measuring CSPs’ consumption is in the radio access staffing levels in the period from 2011 success. All hardware and software that network, but transport and core through 2019. Among the four is owned by telecoms operators is facilities and data centers require operators that increased staff, BT and capitalized. OpEx items in network and power too. Energy usage and costs have Telefónica Deutschland made IT can include the following: been increasingly modestly worldwide. significant acquisitions of competing In many developing countries the ability mobile operators during the period. Employees (however, as previously to deliver energy to cell sites that are discussed most operators report off the grid can be a competitive Sales & marketing labor costs separately) differentiator for mobile operators. Any IT or network capabilities that Ericsson estimates that the telecoms Sales and marketing is the most difficult operators buy as a service category to analyze because of the industry spends about $25 billion a different ways CSPs categorize their Maintenance and repair costs and year on mobile network energy costs, costs. Our research shows that rental fees, plus the cost of regular which is equivalent to approximately spending in this category ranges from software upgrades, patches and 2.5% of total operator revenues. about 5% at Ooredoo to more than bug fixes Meanwhile, McKinsey & Company 20% at BT. Expenditure on public cloud services estimates that energy costs represent Research and development 3% to 5% of total revenues. BT’s biggest sales and marketing expense in 2020 was “product costs Energy to power the network Only BT and Ooredoo broke out and sales commissions”. This likely (although many operators also report expenditure on sites and energy in their comprises the cost of subsidizing these costs separately – see below) financial reporting, and even though their businesses are very different, both mobile devices in addition to In our analysis network and IT opex reported OpEx costs around 4% of total commissions paid to sales staff. One of costs represented between 4% and 9% revenues. However, the figures do not the reasons Ooredoo’s sales and of total revenues. Costs can vary based separate energy costs from site costs, marketing expenses appear lower is on whether operators outsource their which are primarily rental payments to because we chose not to include the network and IT capabilities and then third parties in exchange for deploying company’s category “cost of equipment buy them back as services, which base stations on their property. sold and other services”. If we had, results in OpEx, or whether they Ooredoo would have spent about 14% include the costs in other categories on sales and marketing. such as customer management. Intercarrier payments

The difference in spending between BT As telecoms operators digitize their Wholesale services have always been a and other CSPs is largely due to the businesses and migrate workloads to the feature of telecoms businesses, high cost of acquiring subscribers which cloud, particularly the public cloud, although the business model has operators in Europe and North America network and IT expenditures will evolved in recent years from being tolerate in order maintain their share of change. Many CSPs are entering into voice centric to focusing on data. The new subscriptions. Operators in these deep relationships with hyperscale cloud segment includes payments for national regions tend to have much higher platforms such as Amazon Web and international roaming. average revenue per user (ARPU) than Services, Microsoft Azure and Google There is no reason to think that operators in southeast Asia or Africa, so Cloud Platform. The services they buy intercarrier payments will change customers have a higher lifetime value. from the cloud providers are categorized significantly. CSPs will continue to buy as OpEx, but previously these costs were However, high subscriber acquisition services from other operators to considered CapEx. We’ll explore this costs can effectively wipe out the ensure interoperability and the delivery more in the next section. benefit of higher ARPU levels. Some of end-to-end services to customers. investors believe that any benefits However, new categories may appear resulting from digitization and cost Energy & site such as intercarrier payments relating cutting brings tend to be lost because Spending on energy is a growing to edge computing services. operators use the gains to find higher concern for telecoms operators, partly spending on customer acquisition. because of demands stemming from In the next section, we’ll look at the surging traffic and also because of the impact of technology, particularly cloud Network & IT growing importance and prioritization and automation, on telco OpEx. CSPs try to capitalize network and IT of carbon reduction. Many companies

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Section 4 Impact of new technology on telco OpEx

There is no doubt that technology such as cloud computing, automation and AI will impact communications service providers’ (CSPs’) costs. For example, as operators transition from hardware- to software-based businesses and migrate IT and network workloads to the public cloud, spending will shift from CapEx to OpEx. But it is unclear whether total expenditure will change significantly.

In addition to the shift from CapEx to Spending on networks (CapEx) will The graphic below (repeated from OpEx, the factors listed below will increase marginally in the short to Section 1) shows a snapshot of CSPs’ impact costs, spending and how costs medium term as operators current combined revenue and spending. are allocated. However, not all accelerate fiber and 5G deployment Based on this, we can assess which operators will be impacted equally. For expenditure categories will become a Total spending on IT will increase example, in markets where people are target for cloud spending in the future. over the next two to three years as paid low wages, automation might operators implement digital produce fewer benefits than in transformation programs countries where the average salary is high. In our analysis in Section 3 of operators’ OpEx, labor as a proportion 2020 telecoms revenue & spending esmates of total revenues was 6.6% at MTN South Africa but 20.9% at BT. As automation advances, spending $1.6 trillion on staff will continue to decline as $272 billion Global telecoms operator operators need fewer people to (17% of total revenue) revenue in 2020 Total Telco perform manual processes CapEx Network CapEx The average cost of an employee is $163 billion Revenue from likely to rise as CSPs replace low- $48 billion (60% of total CapEx) cloud-based services paid staff (customer service reps Costs are divided between access <$16 billion ($79 billion-$85 billion) (17.5% of total CapEx) This is a TM Forum esmate and transmission doing jobs which will become IT CapEx (hardware/ based on revenue breakdowns ($59 billion-$65 billion) servers, soware from a limited number of automated with skilled staff) with licenses and large operator groups software skills or a combination of data centers)

commercial and technical skills. This Spending on people Spending on energy & sites could wipe out some of the savings $224 billion $67 billion $104 billion achieved through automation. (14% of total revenue) (4.2% of total revenue) (6.5% of total revenue) Combined IT & Network OpEx Up to $100 billion relates to staff Costs for passive network working in network or IT infrastructure, which is not owned by CSPs and therefore is OpEx

Note: Figures are sourced primarily from TM Forum’s analysis of CSPs’ 2020 financial results but also include IDC’s esmate of $1.6 trillion in total global telecoms operator revenue for 2020. All figures are esmates, and CapEx and OpEx figures are averages of high and low percentages of total spending.

TM Forum, 2021

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Section 4

Network spending billion a year on “people” costs in the IT example, says use of the company’s cloud and network departments. Spending on native OSS/BSS solutions can reduce The $163 billion that operators spend sites and energy amounts to $67 million. CSPs’ total cost of ownership by up to on their networks today is made up of Based on this data, the total, combined 80% over a five-year period. Optiva also passive and active mobile and fixed figure for network and IT OpEx is close to promises savings of up to 80%. The infrastructure, such as radio access $275 billion or about 17% of revenues. company even includes a handy network (RAN) equipment, switches calculator on its website to help CSPs and routers, cables, and fiber ducts. As applications and workloads migrate estimate their potential savings by CapEx also includes money spent on to the cloud, operational roles and moving applications to the cloud. land and buildings, which comprises responsibilities will change and, in some about 10% of CapEx, and on devices cases, disappear. Plus moving network The graphic below, reproduced from an such as set-top boxes, which makes up functions to the cloud will alter energy Optiva screenshot, shows the calculation 9%. Only a small part of CapEx will requirements. Many open RAN the company produced for a mobile ever be a target for cloud investment: protagonists argue that a new open operator in Brazil with more than 20 the computing elements that can be architecture will generate savings million customers, two thirds of whom disaggregated and centralized. because current RAN architecture is are using prepaid services. inefficient in its use of energy. Savings Until now operators have been could also be made on site acquisition Another CSP technology partner, IT reluctant to consider the public cloud and rental if less space is needed for integration specialist Torry Harris for network expenditure, but as mobile computing functions. Integration Solutions, estimates that operators roll out 5G core networks CSPs can make 40% cost savings and push capabilities to the edge, this OSS/BSS savings through the avoidance of operational could change. Virtualization of challenges such as frequent hardware network functions has been taking Overall, the potential for cost savings upgrades, time spent on manual place over several years, and many may be greater in the network than in IT deployments, prolonged development operators plan to evolve to fully cloud- because network spending is so much and release cycles, and frequent native core networks. Furthermore, higher than IT expenditure. However, production deployment roll-backs. many large CSPs have committed to cost savings in IT may be more tangible deploying open RANs which require and achievable in the short term. Migration begins new centralized computing facilities, A handful of cloud native software most likely at the edge. Most CSPs have begun migrating IT vendors, whose products are only (and even some network) workloads to available on the public cloud, are starting private, public or hybrid clouds. We are IT moves to the cloud to make cost-saving claims for operational not aware of any mobile operators that and business support systems (OSS/BSS) The $48 billion that CSPs spend on IT have completely migrated to the public that are so promising even the most CapEx is a prime target for public cloud cloud, although many have business cautious telcos are taking notice. providers. As operators go through the units such as MVNOs which are fully process of simplifying and transforming Mark Collins, Senior VP of Commercial cloud native. IT applications and workloads across Product Management at ZephyrTel, for the business, many will migrate IT workloads to the public cloud. Similarly, the $104 billion spent on combined Esmated total-cost-of-ownership savings over 5 years network and IT OpEx is a target. 48m $42,016,260 In our analysis of OpEx breakdowns in 42m $7,171,200 Section 3, we separated the costs for 38m IT and network operations, staff, and $3,092,580 SAVING 55% 30m site and energy. However, these must $4,581,600 be figured together when considering 24m $10,159,200 the impact of cloud and automation on $19,115,667

Total cost 18m $1,434,240 OpEx levels. $1,075,680 $1,992,000 12m $5,727,000 Based on conversations with CSP $17,681,427 6m executives, we estimate that spending on $8,217,000 staff working in IT and network 0m departments is similar to the On premise soluon Opva cloud-nave BSS on public cloud departments’ other OpEx, which means that telcos are spending about $104 Personnel Disaster recovery Soware maintenance Hardware Hardware maintenance Data center Third-party soware Opva fees TM Forum, 2021 (source: Opva)

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Section 4

Our upcoming Digital Transformation Percentage of IT workloads in the public cloud Tracker 5 looks at the state of cloud 1% migration and finds that three quarters 8% of CSPs have moved less than 10% of IT workloads to the cloud. But at the same 15% 0-10% time, a quarter of operators say that 10%-25% they are absolutely committed to taking 25%-50% 43% a cloud native approach for all their IT 50%-75% workloads, and more than half say they More than 75%

33% TM Forum, 2021

Assessing network and IT cost savings at Rakuten

Japan’s Rakuten Mobile is perhaps business. On average CSPs’ annual network operations accounted for the biggest evangelist of cloud spending on CapEx is around 17% of between 4% and 9% of total revenues. native, open networks. The total revenues (although clearly it However, a significant proportion of company’s Rakuten Cloud Platform would be much higher for an operator Rakuten's savings relate to the need (RCP) is a revolutionary cloud native building a new network from scratch). for fewer people to manage the network and support systems Expenditure on the network accounts network, both in the field and in environment based on open RAN for 70% to 80% with IT accounting for operations centers. standards. Now Rakuten is offering an additional 10%. So, if Rakuten can Our analysis indicates that staff RCP as a service to other mobile cut its network CapEx by 40%, this is accounts for between 7% and 21% of operators, allowing them to benefit equivalent to saving around 5% of total revenues (the lower figure from the company’s approach. total revenue. These savings are from applies to low-wage economies, the significant reductions in hardware and Rakuten claims that RCP reduces higher figure to high-wage network deployment costs, and from CapEx by 40% compared to a economies). If people costs were not centralization and the use of cloud- traditional mobile network and OpEx accounted for separately, network and based software. by 30%. The tables below show a basic IT operations costs would double. allocation of the costs. When it comes to OpEx savings, Based on these numbers, the OpEx Rakuten is not explicit about which savings projected by Rakuten would It is interesting to consider the impact expense items would be impacted. In represent somewhere in the range of of the projected savings on the overall our analysis we found that IT and 3% to 6% of total revenues.

Rakuten’s projected CapEx & OpEx savings

40% CapEx reduction

Traditional 5G network RCP % Change Rationale for change Total CapEx 100% 60% ­40% Software 30% 30% 0% N/A Hardware 45% 17.5% ­60% Less site equipment due to virtualization & pooling of Deployment 25% 12.5% ­50% capacity/resources

30% OpEx reduction

Traditional 5G network RCP % Change Rationale for change Total OpEx 100% 70% ­30% Less site equipment reduces Rent & electricity 40% 30% ­25% footprint & power consumption Increased use of edge locations for Data centers 5% 10% 100% low­latency use cases Increased use of edge Transmission 10% 15% 50% locations & transmission Automation & scale of the Operations center 10% 5% ­50% centralization of resources Less site equipment & automation in Field maintenance 35% 10% ­70% maintenance

TM Forum, 2021 (source: Rakuten)

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Section 4

AI & automation graphic on page 24), while the AI group some cases, CSPs will need to be able to is working on standards and best expose the right data at the right time. Migration to the cloud does not always practices for AI and AIOps (AI in This requires a broad data governance result in savings, and the real driver for operations). strategy, which TM Forum members moving many applications and also are addressing with development of workloads to the cloud may be agility. During an ongoing Catalyst proof of the AIOps Service Management However, when cloud technologies are concept, the AIOps team developed Framework. In other cases, applications used with other new technologies like AI eight use cases that cut across customer and workloads will have to be moved to and machine learning, the potential to experience, quality of service, business the cloud to support the use case. drive deeper cost savings can really kick performance and efficiency: in with automation. Predicting and preventing poor Nevertheless, there are real examples of customer experience operators working with technology Strategy consulting firm BCG reckons suppliers today to deploy new solutions Predicting churn and using proactive that the use of AI at scale across a CSP’s and capabilities that are enabled by techniques to retain customers value chain could result in a 10% automation. Blue Prism claims that its increase in total revenues and a 20% Accurately monitoring service levels customers are saving 30% to 40% on reduction in costs. A TM Forum survey Identifying potential faults and their OpEx by using intelligent automation in for an upcoming report about root causes in 5G networks before customer contact centers. Other autonomous networks finds that two the issues generate impacts or benefits include better customer out of three CSP respondents see cost outages experience and lower churn. savings as a key driver for adopting Preventing customer complaints automaton and AI (see below). They see Similarly, transforming or even Performing preventive maintenance the biggest potential for savings in eliminating network operations activities network operations, network centers (NOCs) leads to OpEx savings. performance and customer care. Deploying an intelligent operations Finnish telco Elisa claims to have an and maintenance (O&M) framework entirely automated NOC, with people TM Forum members are working on for home broadband services intervening only when there is a major automation and AI as part of the Establishing closed-loop service problem. To do this, the company has Autonomous Networks and AI & Data assurance to continuously improve had to automate alarms in the network Analytics projects. The Autonomous service quality and O&M efficiency and program machines to fix the Networks team has described the levels problem. of automation that CSPs’ networks and Quantifying the potential savings AIOps operations will go through on the way to could generate is difficult, and many of Vodafone Group is also embracing becoming fully autonomous (see the the use cases will be hard to deploy. In zero-touch operations in its NOCs.

Network & IT capabilies that will benefit from autonomous networks

Network performance 77.8% 22.2%

Network operaons 70.3% 28.1% 1.6%

BSS funcons 67.7% 27.4% 4.8% (mainly billing & charging)

Sales & markeng 41.0% 45.9% 13.1%

Product teams 30.7% 53.2% 16.1%

Customer care/experience/ 29.0% 54.8% 16.1% engagement

0% 20% 40% 60% 80% 100%

Significant benefits Moderate benefits Less significant benefits

TM Forum, 2021

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Section 4

Six levels of autonomous networks Vodafone UK used to need about 1,500 people to manage its NOCs but LEVEL 5 this has fallen to the low hundreds, according to CTO Scott Petty. Fully autonomous network The system possesses closed-loop automaon capabilies across mulple services, mulple domains (including partners' domains) From CapEx to OpEx and the enre lifecycle When we interviewed CSP executives in 2019 for our research on procurement, we found some LEVEL 4 discomfort with the inevitable reallocation of spending on technology Highly autonomous network from CapEx to OpEx which will result In a more complicated, cross-domain environment, the system enables decision-making based on predicve analysis or acve closed-loop from adoption of public cloud services. management of service-driven and customer experience-driven networks Telecoms operators have traditionally viewed CapEx as “good” expenditure. CSPs and their investors want to maintain good EBITDA (earnings LEVEL 3 before interest, taxes, depreciation Conditional autonomous network and amortization) margins, and these The system senses real-me environmental changes and in certain would deteriorate with a significant network domains will opmize and adjust itself to the external migration of expenditure from CapEx environment in order to enable intent-based, closed-loop management to OpEx, since EBITDA is calculated by subtracting OpEx from revenues.

All the operators that we have spoken to in our research for this report have LEVEL 2 categorized expenditure on public Partial autonomous network cloud services as OpEx rather than The system enables closed-loop operaons and maintenance for specific CapEx, although many of them are units based on AI modelling under certain external environments actively engaged in discussions with public cloud providers to find ways of categorizing public cloud expenditure as CapEx. However, this isn’t the only issue to consider. LEVEL 1 Assisted operations and maintenance When operators procure new technology, they need to make a case The system executes a specific, repeve subtask based on pre-configuraon in order to increase execuon efficiency for a return on investment (ROI) on that technology. Purchasing physical data center (or on-premises) hardware tends to take place in three- or five- year cycles, which is why request-for- LEVEL 0 proposal and request-for-quotation (RFP/RFQ) processes require an ROI Manual operations and maintenance over a three-year period. Purchasing The system delivers assisted monitoring capabilies, but all dynamic tasks must be executed manually public cloud services requires a different way of looking at investment cycles and ROI. TM Forum, 2020

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Section 4

The CSP does not need to invest in make a strong business case for the physical hardware – this is the job of use of public cloud. the public cloud provider. So, logically this means that there is no need to When telcos start to sanction and look at a three- or five-year cycle. The encourage the use of public cloud It requires constant question is whether operators are services, there is a risk that total, attention as if you’re ready to make investment decisions organization-wide expenditure will not that will bring longer-term benefits. be optimized or managed. In a public looking after your own cloud environment, there is little to “ How costs are allocated and stop any part of the organization from garden,” Bell explains. accounted for can affect decisions developing its own systems and “It’s not like hardware about whether to move applications to deploying cloud assets as it sees fit. the public cloud. For example, some where you take the CSPs use separate departments to Without the right controls in place, view that if you’ve got it spending on usage-based public cloud manage IT infrastructure and IT you’ll find a use for it.” software and services. If the owner of services can surge dramatically. IT infrastructure has a powerful role Nathan Bell, Chief Digital Officer at M1, recognizes that operators need to within the organization and can make In the final section, we offer guidance constantly monitor their usage of the case that private data centers are CSPs can use to embrace new public cloud in order to manage costs. an important part of the overall value technology and reduce costs. of the business, it may be difficult to

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Section 5 Make it happen – Strategies for reducing costs

It will become increasingly difficult for communications service providers (CSPs) to reduce costs through departmental budget cuts, especially when many large telcos have already made steep cuts. They must embrace new technologies like cloud, automation, machine learning and AI to reduce OpEx further – and impress existing and potential investors. Following are recommendations to help CSPs reduce costs as part of their efforts to transform digitally:

Think long term Embrace automation Change CapEx to OpEx When CSPs plan their investments in Executives in CSPs’ technology When operators move network and new technology, they typically think of organizations are comfortable talking IT workloads to the cloud, they will a three-year return on investment about automation, but it is not well necessarily incur OpEx. Many of the (ROI). But if they are to benefit from understood within the investor CSP executives we interviewed public cloud services, they will need to community. For example, there is little recognize that it can be more difficult take a longer-term view. Once understanding about the different to secure budget for costs that are operators have migrated applications levels of automation, the relationships categorized as OpEx rather than and workloads to the public cloud, they between automation, AI and cloud, and CapEx, for which there are well no longer need to budget for new the potential business impact of established approaches and hardware because it is the public cloud increasing automation. CSPs need to principles. This is because CSPs and provider that incurs the hardware be able to explain these relationships their investors use EBITDA margins costs. Cloud native software suppliers to investors and why benefits will as a preferred key performance generally ask operators to measure increase as they progress through the indicator. This could dissuade CSPs five-year ROI rather than three. different levels of automation. from using public cloud services, Operators also must be able to explain causing them to miss out on key why 5G and edge computing require benefits such as flexibility, scalability automation. and the ability to experiment and innovate with more confidence. To overcome such obstacles, CSPs should build compelling, holistic business cases for cloud migration that demonstrate clear savings across combined CapEx and OpEx categories.

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Section 5

Cut costs to lift revenue Eliminate silos Adopt standards To build new lines of revenue, CSPs CSPs have lot of legacy systems and One way to reduce silos and increase will need to invest in new systems and processes. Over many years they have automation is to use an open platforms to deliver new services, but become siloed organizations with architecture such as the TM Forum this is only part of the story. When it different cultures, vendor Open Digital Architecture, part of the comes to delivering IoT connectivity, relationships and varying levels of Open Digital Framework (see page for example, operators must lower digital maturity. If operators are to 39). The ODA is a component-based their own costs to enable them to modernize technologies, architectures approach which enables CSPs to reduce their prices to their customers. and working practices they must work evolve to a fully automated, cloud IoT ARPU has fallen dramatically in across the silos. This means adopting a native operations environment that recent years. On average, IoT is common culture, finding ways of relies on analytics and AI to deliver generating less than $0.50 per month overcoming technology fragmentation zero-touch services. It defines in connectivity revenues. If operators and introducing common targets and standardized, interoperable software want IoT connectivity to be profitable, goals. This will require the adoption of components organized into loosely they use to need new technologies and new governance structures, more coupled domains. These components capabilities such as cloud native cross-departmental roles and teams expose business services through components and automation to and a reorientation of the whole Open APIs which are built on a radically alter their cost base. organization towards the customer. common data model. The ODA offers a blueprint for evolving from legacy support systems to applications that are cloud based and cloud native, but widespread agreement, collaboration and contribution among many CSPs and vendors is necessary to advance it. To find out how you can get involved, please contact Ian Turkington.

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Additional features & resources

29 | Transform Your Opex Mindset 32 | CSPs Turn to Intelligent Automation, Common Open­Source Platform to Scale 35 | The “How­To” of automation and legacy transformation to impact your bottom line 39 | TM Forum Open Digital Framework 40 | TM Forum research reports 41 | Meet the Research & Media team 24769 Cloud Automation Report.qxp_24769 Cloud Automation Report 22/04/2021 15:44 Page 29

Transform Your Opex Mindset Cloud, Automation, and Beyond

Cloud technologies and related automation offer great promise for improved operational performance. Accelerated by the pandemic and challenges it introduced, embracing cloud technologies is critical for CPSs that want to maintain and improve customer experience and satisfaction. It is especially true given remote work limitations, lack of resource accessibility, and the continued pressure to cut costs across network, IT, and operations.

The areas that can benefit from cloud, facilitated by standardized cross- overall cost reductions on Opex and automation, and accompanying massive system integrations. Capex, and opportunities afforded cost reductions are: through new business and improved Operational processes customer experience. Care and customer management CSPs can improve and optimize IT The digital era and pandemic have and network infrastructure, improve Optiva, a leading cloud-native driven customers to adopt digital and reduce costs related to software monetization solution provider, has services while increasing their management across the different adopted cloud technologies and expectations for instant availability, systems, and automate and optimize associated automation capabilities and visibility, and self care. network management and inventory. methodologies as a core capability for its products. These help deliver Business processes As CSPs navigate through the significant cost savings to customers Heavy processes with multiple cloudification and automation journey, through its charging engine and BSS stakeholders across the organization it is recommended they take a holistic stack. The cloud adoption journey can be transformed into efficient approach and maintain the right provides critical business benefits, actions that rely on easy balance between operational including agility, competitive edge, and configuration through UIs that are automation benefits, the potential of improved time to revenue.

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Optiva’s strategy embeds capabilities lifecycle management, reducing Enable automated optimization of that drive automation and cost savings associated Opex and Capex. processing needs in a distributed across its product, delivery, and environment between central and operations, including: Meanwhile, CSPs are ensured the edge deployment and reduce introduction of new features, the interconnect operational costs. 1. Fast time to revenue with a latest OEM and security layer, and the centrally managed product capability to launch new services 3. Seamless and high-quality framework ahead of their competition with delivery of new functionalities decreased operational burden. with Optiva Testing Framework A centrally managed strategy is 2. Cross-system automated Optiva framework for automated testing common in public cloud products, and provides complete coverage of scenarios it leverages cloud automation tools fulfillment and orchestration for all of its capabilities and and decomposed cloud-native Charging is a critical element for new functionalities across the Optiva architecture for development and 5G and IoT monetization portfolio. The framework is continuously delivery. It ensures that all product opportunities. Therefore, Optiva enhanced with flows based on customer instances across Optiva’s broad global focused on enabling automation requirements and new features, customer base, either on private, beyond its core domain and introduced executed automatically across the entire public, or hybrid clouds, are always on functional automation innovation to solution for each change and capability the latest product version with a well- support new services and improve rolled out. The automated testing today defined automated CI/CD pipeline and interconnect capabilities across the includes more than 5,000 test use cases updated process. It enables a record- different CSP ecosystem components. and allows the dramatic decrease of the breaking launch of a greenfield testing period and manual operational installation on the cloud within eight Automate the E2E flow resources required to support them. It weeks with a rich set of OOTB optimization between the BSS ensures that all user journeys and pre-configured features, and thus it through its embedded policy experiences are approved before allows operators to test fast new control and the network by utilizing launching a new service, perfecting the services with lower investments and dynamic, instantaneous rules delivery of a seamless and fluid operational costs. adoption on quota resources, customer experience. Optiva Testing value-based handling of business Benefits also include periodic Framework can be extended to CSPs for products to meet new business automated rollouts of new additional use and allows further savings needs in 5G, IoT, and optimizing the functionalities without the need for on the CSP’s side. relevant network inventory. major upgrades or heavy software

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4. Offering diversification with business UI and automated while ensuring business continuity and zero-touch, integration-driven propagation of parameters across all excellent customer experience. These open architecture the different modules for fast rollout include capabilities, such as: of new services, products, offerings, partners, enterprises, etc., while Software automated self healing, A decomposed cloud-native ensuring service availability for end architecture that separates between eliminating heavy customization management and cutting short the customers with full automation of function, parameters, and databases the system runtime. enables the use of configuration tools required business operations. and business UI to introduce any new On the fly offering and charging Automated and zero-touch scalability service or offering and integration to optimization through AI and and elasticity to react fast to capacity other systems instead of heavy machine learning through open data needs to improve response time and customizations activities and actions access and closed-loop feedback. ensure service availability. that previously required heavy business operations. These include: 5. 100% business continuity with Cloud-native design optimizes and improves the use of compute Open architecture with open APIs automated cloud management processing powers and allows for zero-touch integrations in the infrastructure and software tools improved compute utilization. ecosystem, facilitating real-time Implementing cloud software business process optimizations. management tools, such as Kubernetes, drives improved Single point of configuration with a operations and leads to efficiency vast range of flexible capabilities in a

Transform your mindset subscription-based models. This will About Optiva drive a change in the overall cost

and your business structure as well as operational Optiva Inc. is a leading provider of Operational cost savings is just one overhead and shift the balance between mission-critical, cloud-native revenue stream of the overall cost savings that Capex to Opex-oriented cost structure management software for the cloud technologies and automation can while reducing the overall total cost of telecommunications industry. Its deliver. As the adoption of these ownership (TCO). In the case of BSS products are delivered globally on the technologies increases and the journey solutions, based on Optiva TCO private and public cloud. Its solutions towards the cloud accelerates, the evaluation methodology, which has been help service providers maximize benefits of cloud will go well beyond cost evaluated in more than 40 cases, this digital, 5G, IoT, and emerging market savings. Optiva foresees a change to change can reach an average of 60% in opportunities to achieve business how compute will be consumed cost savings when fully adopting cloud success. Established in 1999, Optiva leveraging the public cloud, and in turn, technology and capabilities. Inc. is on the Toronto Stock Exchange this will shift commercial models from (TSX:OPT). For more information, visit traditional licensed-based to SaaS, www.optiva.com.

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CSPs Turn to Intelligent Automation, Common Open-Source Platform to Scale

By Volker Tegtmeyer, Red Hat

Leading communications service providers (CSPs) worldwide are rapidly beating a path toward greater automation. It is widely recognized that substantial advances must be made to deliver on 5G, internet of things (IoT) services, high performance edge applications, dynamic network slicing, and autonomous networks.

In most cases, CSPs have begun to This focus on automation, agility, transform and automate both their interoperability, and independence is a networks and IT environments using massive change. CSPs must now open source, cloud-native grapple with operating and automating technologies. As networks are the open-source infrastructure that CSPs must now grapple increasingly virtualized and BSS and will underpin their BSS, OSS, and OSS transition to microservices, CSPs virtualized networks going forward. with operating and need a common, open-source platform They will continue, however, to place automating the open- that automates and orchestrates increasing carrier-grade demands, like “ source infrastructure that container operations. This is necessary massive dynamic scalability, on their to enable the massive on-demand technology platforms particularly as will underpin their BSS, scale, carrier-grade stability, and complex 5G, IoT and autonomous OSS, and virtualized substantial speed and efficiency gains network services come online. networks going forward. expected of CSPs’ cloud-native transformations. Container operations and intelligent Intelligent automation adds value An industry calling through data-driven analysis and for change automation needed decision making that makes processes, their designers and their users smarter As CSPs adopt open source and cloud CSP leaders like Orange Group CEO and more productive. and GSMA Chair Stephane Richard native technologies, it is often because have called publicly for a shift to open, they aim to containerize OSS and BSS Intelligent automation also helps CSPs cloud-native technology, open APIs, and microservices as well as virtualized at any point in their digital interoperability to reduce cost and network functions. Open-source transformation process to streamline accelerate innovation. Richard argues container orchestration and operation, operations and lower opex. CSPs are in that legacy costs must be left behind coupled with intelligent automation, are a transitional period where solutions because carrying legacy systems necessary to address most CSPs’ sheer that combine new and legacy systems forward can consume 40% of a CSP’s IT scale and to achieve advantages in speed, span private and public clouds, and on- budget. He insists CSPs must embrace efficiency, and developer-friendliness. premises data centers. cloud-native and open-source In large deployments like telecom IT Working across hybrid cloud technologies across both IT and environments and networks, intelligent environments, intelligent automation networks that are interoperable and automation is needed to sustain the frees operations teams from repetitive, enable CSPs to be more self-sufficient in entire container environment. lower value tasks, hands-on lifecycle software development and deployment.

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management, deployment, and other The common container platform A CSP’s open source common processes. reduced hardware costs for Proximus by 20% and saved €30,000 in development container environment CSPs achieve measurable costs monthly. It also enabled the ability must be: to scale on-demand that is required for success NFV. Most importantly, the common • Robust enough to underpin Operators that have adopted this container platform provided a complete BSS, OSS, and virtualized automation-based, open source, orchestration solution to Proximus networks common container platform approach which it uses to host, operate and sustain have found measurable success. its evolving microservices architecture. • Easy for developers to use Several examples show operators across complex hybrid clouds leveraging it for BSS, OSS, and Containerization of applications network services to gain substantial speeds service delivery • Automated for everything cost and time to market benefits. from production rollouts to Switzerland’s Sunrise Communications business processes. Virtualizing network services is heavily focused on digitalization and accelerates time to market on continuing to develop many new services quickly. “When we decided to management, and from having to learn Turkcell has used a common container use containers to do that, we knew we multiple different cloud environments platform as the foundation for its would need support to make the most to ascertain and access resources. centralized NFVI environment. The of this new technology,” said Luca With these types of improvements, platform lets Turkcell balance the Broggio, Head of Applications intelligent automation avoids costly benefits of deriving innovation from Operations, Sunrise Communications. human errors and accelerates a CSP’s the open-source community with the Sunrise created a container- and pace of development and innovation. carrier-grade stability, reliability, and microservices-based infrastructure, support it needs to efficiently As CSPs expand automation initiatives, gaining the products, tools, and virtualize resources, organize them they need an open, scalable, common, components it needed to containerize into clouds, and manage them. containerized architecture to support applications, develop a microservices- the entire network, service and The common container platform also based architecture with modern operations environment. This includes enabled Turkcell to reduce the time development methodologies, and BSS, OSS, virtualized networks, and needed to put a new service into reliably transfer data between new and hybrid clouds.This end to end approach production from 6 months to 2 months, existing applications. Red Hat provided is necessary to achieve the performance a critical goal that both supports new the tools while Red Hat Consulting and efficiency complex services like revenue generation and dramatically supported Sunrise in its shift to an network slicing and high performance reduces development cost and effort. iterative, agile development approach. edge applications demand. “For the last 3 years, we’ve seen that The simplification of the configuration virtualizing a network service is more and management process achieved a Automation needs to be agnostic to financially viable than continuing to 75% faster time to market. the underlying infrastructure. OSS, invest in legacy infrastructures,” said Elif BSS, network, or services built on the Yenihan Kaya, Director of Network An open universal hybrid cloud for common container platform should be Capabilities at Turkcell. cost reduction and revenue growth infrastructure agnostic from bare metal, to private, public, and hybrid Replacing bare-metal with a Vodafone Idea, which supports nearly cloud, to edge locations including data 300 million subscribers in India, is centers, central offices, cell sites, and common container platform to reduce cost creating India's first Open Universal 5G edge computing sites. Hybrid Cloud powered by IBM and Red Proximus, Belgium’s largest telecom Hat. This initiative aims to deliver a high Developers should see a common set of provider, replaced its bare metal servers degree of automation across hybrid accessible resources - in whichever with a common container environment clouds that support its OSS, BSS, and cloud or data center they may reside for its NFV network. “We wanted to get network systems, as well B2B customer through common tools that allow them free of our dependency on specialist offerings. To achieve this, Vodafone Idea to focus on development and vendors and the high cost of ownership simplified its IT and telecom network innovation. The ability to create, launch, that came with that approach,” said Alain operations using an automated, and improve services is enhanced with Elengesa, Telco Cloud Manager, Proximus common container platform. The intelligent automation because the Group, “but we needed a platform that platform delivers cost benefits because development workforce is freed from could match the performance of our it optimizes capex, opex, skills and manual tasks associated with lifecycle bare-metal environment.” automation investments across both the

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network and IT application domains. It also bolsters revenue growth because of the speed and efficiency it can enable as result of intelligent automation. Take a closer look ABOUT RED HAT IN TELECOMMUNICATIONS The shift to open-source and cloud- native technologies continues to As telecommunications service providers race to become more agile to accelerate for CSPs everywhere. This take advantage of the promise of 5G networks, Red Hat and its global places a premium demand on solutions partner ecosystem offer a comprehensive open platform that helps that can operate and automate new service providers innovate faster, bringing new services to market with open-source container environments superior scalability, security, and efficiency. Red Hat is the world’s across BSS, OSS and virtualized leading provider of commercial open source software solutions, using a networks at carrier-grade and scale. community-powered approach to deliver reliable and high-performing Linux, hybrid cloud, container, and Kubernetes technologies. Award- Want to learn more about Red Hat’s winning support, training, and consulting services make Red Hat a approach to building and automating trusted adviser to the Fortune 500. telco clouds? Start here.

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The “How-To” of automation and legacy transformation to impact your bottom line

Legacy is a good word! the above four points and thus transform vendor might have stopped legacy. The key components of such a developing new features and the The word “Legacy” often has unhappy model are Containerization, Microservice systems are nearing sunset stage. connotations of being “outdated” and based Architecture, Automatic Scalability Such applications are mostly “high maintenance”. While this may be and System Observability. monolithic in nature. They tend to be partially true, the business rules & black boxes, with data and functions Typically, legacy applications can be not exposed in a granular fashion. transactions built into your legacy, over categorized into one of three categories many years, are still highly relevant and listed below: c) Business critical applications that are valid. Your legacy assets, often become fully functional but built on legacy your core business differentiators. a) In-house developed applications, hardware and operating systems built on outdated technology that is such as Mainframes. The challenge A few ways to get more value out of expensive to maintain, not scalable, with these applications is to make legacy would be to: with non-availability of skills for them integration-friendly and feature evolution. These systems n Wire them together in new ways scalable through API-enablement. severely impact time to market. In n Make them more accessible to most cases, they are not Factoring in the above scenarios, we customers and partners integration-friendly, as they support formulated a legacy decomposition n Combine them with new capabilities outdated interfaces. process to help put a method to the n Make them more scalable madness, as illustrated in Fig 1: Legacy b) Third-party, out-of-the-box business decomposition flowchart: A cloud native application model offers applications, that were typically you building blocks that help you achieve procured several decades ago. The

Fig 1: Legacy decomposition flowchart

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Legacy and cloud-native significant OPEX reduction to CSPs user is made possible through the owing to: speed, agility and scalability offered can and will co-exist in a cloud-native model of rendition. n Processes and workflows – Not all capability from legacy fit into the Automation & the ability to reuse ….bringing with it, savings due to: microservices architectural model. assets (common services), is built 1. Avoidance of operational challenges Infact, it isn’t even a best practice to into every stage of the development with legacy such as frequent move all capability. When we and deployment lifecycles. The use hardware upgrades, time consumed decompose legacy, we identify of automated tests, Continuous in manual deployments, prolonged application components and data that Integration/Continuous Delivery development and release cycles, can be containerized. With a deliberate (CI/CD) processes etc. is mandated, frequent production deployment and careful data migration strategy and reducing time-to-market and costs. rollbacks, etc. This enables our CSP decomposition, a monolith can be split n Infrastructure - Cloud Native customers to achieve annual savings into a set of microservices. Parts of the runtime architecture leverages of up to 40%. monolith that cannot be decomposed is automation to ensure operational retained until it is re-engineered or stability through end-to-end 2. Hardware & Containerization – replaced with a third-party product or a monitoring, system observability, Legacy systems traditionally are run SaaS application. If the retained part chaos-engineering. These aspects on legacy hardware, which require exposes interfaces, it can be API- align towards the SRE (Site constant upgrades and capacity enabled as-is, using an integration tool. Reliability Engineering) discipline upliftment due to growing Digital The three models of co-existence and that ensures smooth operations for consumption and scaling needs. migration are shown in Fig 2: Models for mission critical systems. The ability Cloud Native is built on the legacy and cloud native to co-exist to harness “as-a-service" models foundation of scalable and dynamic and containerization, at the capacity provisioning, it introduces a OpEx savings – how application level, greatly optimizes new dimension of automation in the and why hardware investments traditional capacity management practice leading to cost and time The automation, agility and optimization n Business enablement - A fully native, savings of up to 50% annually. elements in a Cloud Native world offer integrated experience to the end-

Fig 2: Models for legacy and cloud native to co­exist

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Fig 3: Legacy to cloud native kit – tools and components

Tools to standardize and security policies ( OAuth, HTTP-Basic, A stubbing automation tool: etc. ). A token-based authentication AutoStub® accelerate migration to model makes it highly secure. cloud native AutoStub® is an automation tool for A visual integration tool: Coupler API mocking. It has automatic data Torry Harris helps IT leaders analyze, ‘Coupler’ is designed to model flows population capabilities configured for extract and modernize functionality through configuration (drag-and- different response parameters. Its from their legacy estate in a consistent drop) and expose them on a micro- intelligent mocking capability helps manner for a standardized, accelerated gateway. It supports multiple design stateful data, across API move to a cloud native setup. protocols such as SOAP, REST, JDBC, invocations. The tool is used to create MQTT, JMS, etc. It offers node-based DevOps lifecycle automation for The TMForum compliant “legacy to data flow modeling with configurable microservices by stubbing cloud native kit” enables CSPs to properties for each node. dependencies for each microservice to leverage ready-to-deploy digital tools, enable “testability” of each use case. automation frameworks, and services. A deployment automation tool: The kit accelerates reducing OpEx Deplomatic An API test automation tool: costs, by building scale and efficiency Automaton™ while standardizing cloud native Deplomatic is an advanced deployment components across group companies. automation tool. It is a container-based Automaton™ is a test automation tool to environment provisioning tool, built on test API flows using a visual approach. It A micro-gateway: DigitMarket™ Ansible, to provision a sandbox is extensible. It can test beyond APIs. Its API Manager environment, for approval of workflow- API-driven approach helps trigger tests based environment creation and from external scripts. It is used to create The DigitMarket™ micro-gateway is continuous deployment. It can be DevOps lifecycle automation for deployable as a standalone gateway exposed through APIs for easy microservices through test automation instance to secure microservices. It integration into DevOps based for continuous integration. It can be has configurable usage policies workflows (continuous deployment). configured to generate reports for each (throttling, rate limiting, etc.) and test execution.

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Specific savings enabled by Torry Harris can migrate from legacy to cloud-native automation tools at each stage of the environments with minimal risks. development, deployment and operations of cloud native applications High performance and are captured in Table 1: Annual savings - scalable systems Legacy to cloud-native kit Legacy to cloud native kit The cloud-native environment achieved is TM-Forum open digital Key benefits of legacy to through the kit can meet and exceed the architecture (ODA) high-performance requirements that “ cloud native kit: many enterprises need at the moment. compliant, with tools and The kit takes into account current and frameworks to help you Migrating select legacy systems to a future scaling needs of your enterprise. progressively transition cloud-native setup is an important step in your journey to build digital Leverages legacy functionality your legacy applications to ecosystems. And cloud-native will a cloud-native architecture” propel your operational efficiency. The kit facilitates retention of what is good about legacy. It helps leverage all The legacy to cloud-native kit offers the your business differentiators built into following advantages: your legacy systems over the years Watch the video to learn more: rather than reinvent the wheel! A standardized approach, TM Forum compliant Legacy to cloud-native kit

CSPs can achieve their legacy n Lowers total cost of ownership application migration goals faster n Reduces complexity through automation with a TM Forum n Reduces time-to-market compliant toolkit-based approach. You have better predictability and n Eliminates technical debt standardization in the journey to n Improves agility and scalability establish your cloud-native setup. n Increases responsiveness and flexibility Easily managed n Enables real-time insights Legacy to CN kit is designed with Contact us for your legacy flexibility and simplicity in mind to modernization, migration, and support ensure that the migration of your legacy initiatives. Accelerate with the “Legacy systems is seamless and hitch-free. to cloud native kit”: [email protected]

Cost effective and reliable migration www.torryharris.com The L2CN kit is cost-effective and guarantees high RoI. With this kit, you

Table 1: Annual savings ­ Legacy to cloud native kit

No Torry Harris tool Area of Automation Annual Savings

Deployment automation framework that also provides environment Has reduced environment governance 1 Deplomatic governance and workflow capability. It drives cost efficiency through cost for customers by 35% avoidance of over­provisioning of Cloud resources.

Reduces development effort up to Microservices development framework through visual flow design 2 Coupler 40% compared to a code­based approach. Ideal for Integration­centric Microservices. approach for implementation. Stubbing Automation tool to automatically generate data­driven API 3 AutoStub Reduces development time by upto 20% stubs for test automation and facilitate CI/CD

Test Automation tool that provides a visual tool to model your APIs and 4 Automaton Reduces test automation effort by 30% other application test scenarios

DigitMarket Microgateway to securely expose your Microservices through a de­ 5 Reduces operational cost by 15% Micro­Gateway centralized policy management

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TM Forum Open Digital Framework

A blueprint for intelligent operations fit for the 5G era The TM Forum Open Digital Framework (ODF) provides a migration path from legacy IT systems and processes to modular, cloud native software orchestrated using AI. The framework comprises tools, code, knowledge and standards (machine-readable assets, not just documents). It is delivering business value for TM Forum members today, accelerating concept-to-cash, eliminating IT & network costs, and enhancing digital customer experience. Developed by TM Forum member organizations through our Collaboration Community and Catalyst proofs of concept, building on TM Forum’s established standards, the Open Digital Framework is being used by leading service providers and software companies worldwide.

Core elements of the Open Digital Framework Goals of the Open Legacy transformation tools Maturity tools Data Digital Framework The aim is to transform business agility (accelerating concept-to- Systems Business cash from 18 months to 18 days), (IT & Network) enable simpler IT solutions that are easier and cheaper to deploy, integrate and upgrade, and to establish a standardized software Deployment model and market which benefits & runtime Implementation Governance all parties (service providers, their

Open Digital Framework suppliers and systems integrators).

The framework comprises TM Forum’s Open Digital Architecture (ODA), Learn more about member together with tools, models and data that guide the transformation to collaboration ODA from legacy IT systems and operations. If you would like to learn more about the Open Digital Open Digital Architecture Transformation Tools Framework, or how to get involved n Architecture framework, n Guides to navigate digital in the TM Forum Collaboration common language and design transformation Community, please contact principles n Tools to support the migration George Glass. n Open APIs exposing business from legacy architecture to ODA services Maturity Tools & Data n Standardized software n Maturity models and readiness components checks to baseline digital n Reference implementation and capabilities test environment n Data for benchmarking progress and training AI

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TM Forum research reports

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Section Title

Meet the Research & Media team

Report author: Report Design: Mark Newman Intuitive Design UK Ltd Chief Analyst Report Editor: [email protected] with Justin Funnell Dawn Bushaus Contributing Analyst Managing Editor Published by: [email protected] [email protected] TM Forum 4 Century Drive, Parsippany, NJ 07054 Customer Success & USA Operations Manager: Senior Analyst: www.tmforum.org Ali Groves Tim McElligott Phone: +1 973-944-5100 [email protected] [email protected] Fax: +1 973-944-5110 ISBN: 978-1-945220-97-5

Global Account Director: Editor, Digital Content: Carine Vandevelde Arti Mehta [email protected] [email protected]

Commercial Manager, Digital Marketing Research & Media: Manager: Tim Edwards Anna Kurmanbaeva Senior Analyst [email protected] [email protected]

© 2021. The entire contents of this publication are protected by copyright. All rights reserved. The Forum would like to thank the sponsors and advertisers who have enabled the publication of this fully independently researched report. The views and opinions expressed by individual authors and contributors in this publication are provided in the writers’ personal capacities and are their sole responsibility. Their publication does not imply that they represent the views or opinions of TM Forum and must neither be regarded as constituting advice on any matter whatsoever, nor be interpreted as such. The reproduction of advertisements and sponsored features in this publication does not in any way imply endorsement by TM Forum of products or services referred to therein.

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For more about TM Forum’s Collaboration Community, please contact George Glass