24769 Cloud Automation Report.

qxp_24769 Cloud Automation Report 06/05/2021 10:44 Page 1

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

Editor:
Dawn Bushaus, Managing Editor

April 2021

Sponsors:

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24769 Cloud Automation Report.qxp_24769 Cloud Automation Report 22/04/2021 15:44 Page 2

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
easiest way for operators to demonstrate PEOPLE & CONTENT
SALES & MARKETING
the benefits of transformation. Employees’ salaries Handset subsidies & other
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 &
IT OPERATIONS
GENERAL &
ADMINISTRATIVE Operaon & maintenance ENERGY & SITE
OpEx falls into two categories: direct Building rental, of the network
Power consumpon
and indirect costs. Direct costs are office furniture,
supplies, etc.
Internal & customers’
IT infrastructure
& site rental

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
NONOPERATING
WHOLESALE
difficult to make meaningful cuts. To Spectrum, franchise,
concession, etc.
EXPENSES
Network sharing,
lower OpEx CSPs are more likely to network rental/lease, Finance, depreciaon

focus on indirect costs such as network

interconnecon/ & amorzaon, tax
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,
Which CSPs are cost-cutting leaders
particularly companies How investors feel about CSPs’
Our results reveal that there is plenty
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
reduce OpEx further on CapEx and OpEx in 2020
across the business rather than
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
America Movil 49.2 35.2 48.5 33.4 49 32.8
option to reduce investment in the
AT&T 170.8 114.1 181.3 122 171.8 117.4
network. Furthermore, investors have
Axiata Group 5.8 3.8 6 3.2 5.9 3.2
rewarded operators that have invested
Bell Canada 18.6 11.1 19 11 18.2 10.3
early and heavily, be it in deploying
Bharti Airtel 11.5 7.4 11.1 7.5 11.4 5
fiber or committing to LTE and 5G.
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

$82
We can conclude that operators are
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
$77
operators have been able to deliver
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,
and they are confident that new Next wave of cost-cung program aims
Plans to achieve
"Scale Up" program aims to
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 ($1.4bn)
($298m) between 2021
and 2023 ($1.2bn) by 2023

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
offer limited savings, so operators Aiming for
Targeng

likely will need to depend on

successful automation initiatives.
CHF100m kr2bn in cost
As we'll see in Section 2, investors ($107m) in cost savings in
2021 and 2022
($234m) savings
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

cloud-based services
$48 billion (60% of total CapEx)
Costs are divided between access <$16 billion
(17.5% of total CapEx) ($79 billion-$85 billion)
This is a TM Forum esmate
IT CapEx (hardware/ and transmission
based on revenue breakdowns
servers, soware ($59 billion-$65 billion)
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

(4.2% of total revenue) (6.5% of total revenue)
(14% 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

60
overlapping functions in areas such as
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.

This is partly because cost savings are

3%
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
Altice Europe slowed after two years.
12%
Share price up
6%
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

1%
In 2011, Spark New Zealand was
spun off as the mobile arm of Telecom
New Zealand. Without a fixed-line
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
and lift EBITDA margins into the low
25%
Share price up
3.1%
EBITDA up
30% range, from 28% in 2016. The
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 potential
Orange, and AT&T has also discussed
different buckets is obscure, varies by
transformation-led cost cutting in the Interestingly, the CSPs with the
company and can change. Continued
US. In contrast, CSPs with somewhat poorest revenue outlook appear to be
changes in accounting standards have
faster-growing businesses, such as transforming the most. This is evident
also muddied the water significantly,
Comcast, Charter Communications, T- in stock market consensus. The
making analysis of cost trends over the
Mobile US and Verizon, are much less graphics on page 12 show consensus
last three years difficult.
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. forecasts for revenue growth.
Despite all this, the digital
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
EITDA margin change (pp) 2022e vs. 2020

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
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%
BITDA CAGR 20-22ee

Comcast
10%
TMUS

8% Charter Comms

6% Telus
PT Telkom
MTN Deutsche Telekom
MTS
4% Vodacom
BT Vodafone BCE
China Mobile
KPN Telenor
Sobank
2% Orange Verizon
AMX
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

Complexity of transformation programs

margin expansion at the relatively
Cultural
high-growth US cable companies.
or business
model shi
However, the operators with the
highest expected margin growth are End-to-end,
those with the worst growth company-wide
transformaon
prospects. These forecasts largely
reflect guidance from the companies
Funconal
themselves and show that CSPs’ cost transformaon
transformations are examples of
necessity being the mother of Budget
invention. assurance
(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
& CONTENT
PEOPLE
countries and regions and represent Employees’ salaries Handset subsidies & other SALES & MARKETING

a wide range of developed and Temporary/contract

device/equipment sales
Content & revenue sharing
Customer service,
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
reported OpEx, we wanted to map their Building rental,
office furniture,
of the network
Internal & customers’
Power consumpon

spending to the direct and indirect

& site rental
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 OpEx as a
total revenue
percentage percentage of
in 2020
of BT's total Oooredoo's
revenue in 2020 revenue in 2020

Handsets & other accessories 20.0%

Interconnect 3.4%
Roaming 1.0% Employee salaries & 11.3%
Labor 20.9%
associated costs
Product costs & sales 19.5% Commissions 4.6%
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%
Markeng & sales 1.3% Outpayments & interconnect 7.6%
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-cung 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%
80% 11.6%
15.1%
14.7%
7.2%
60% 31.3%
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%
50% 9.2%
8.0%
0.4% 8.6%
40% 20.8% 4.4%
9.5% 7.6%
30% 3.8% 4.9%
4.4%
20% 9.1%
21.3%
20.9% 4.1%
10%
6.6% 11.3%
0%
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 Operaon & maintenance
staff costs by department. Indeed,
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%
7.4%
Telenor’s spending in TM Forum­identified OpEx categories in 2016

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

Regulation 4.1% 11%

Network
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
Sales and marketing is the most difficult Ericsson estimates that the telecoms
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
mobile devices in addition to their businesses are very different, both
In our analysis network and IT opex
commissions paid to sales staff. One of reported OpEx costs around 4% of total
costs represented between 4% and 9%
the reasons Ooredoo’s sales and revenues. However, the figures do not
of total revenues. Costs can vary based
marketing expenses appear lower is separate energy costs from site costs,
on whether operators outsource their
because we chose not to include the which are primarily rental payments to
network and IT capabilities and then
company’s category “cost of equipment third parties in exchange for deploying
buy them back as services, which
sold and other services”. If we had, base stations on their property.
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
operators in southeast Asia or Africa, so There is no reason to think that
Cloud Platform. The services they buy
customers have a higher lifetime value. intercarrier payments will change
from the cloud providers are categorized
significantly. CSPs will continue to buy
However, high subscriber acquisition as OpEx, but previously these costs were
services from other operators to
costs can effectively wipe out the considered CapEx. We’ll explore this
ensure interoperability and the delivery
benefit of higher ARPU levels. Some more in the next section.
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

$272 billion
$1.6 trillion
on staff will continue to decline as 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- cloud-based services

paid staff (customer service reps

$48 billion (60% of total CapEx)
Costs are divided between access <$16 billion
(17.5% of total CapEx) ($79 billion-$85 billion)
doing jobs which will become IT CapEx (hardware/ and transmission
This is a TM Forum esmate
based on revenue breakdowns
($59 billion-$65 billion)
automated with skilled staff) with servers, soware
licenses and
from a limited number of
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
IT moves to the cloud to make cost-saving claims for operational
private, public or hybrid clouds. We are
not aware of any mobile operators that
The $48 billion that CSPs spend on IT and business support systems (OSS/BSS)
have completely migrated to the public
CapEx is a prime target for public cloud that are so promising even the most
cloud, although many have business
providers. As operators go through the cautious telcos are taking notice.
units such as MVNOs which are fully
process of simplifying and transforming cloud native.
Mark Collins, Senior VP of Commercial
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
Section 3, we separated the costs for 38m
$7,171,200

IT and network operations, staff, and $3,092,580 SAVING 55%

site and energy. However, these must 30m $4,581,600
Total cost

be figured together when considering 24m

the impact of cloud and automation on
$10,159,200
$19,115,667

OpEx levels. 18m

$1,075,680
$1,434,240
$1,992,000
12m
Based on conversations with CSP $5,727,000
$17,681,427
executives, we estimate that spending on 6m
$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
Hardware maintenance
Disaster recovery
Data center
Soware maintenance
Third-party soware
Hardware
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
that the use of AI at scale across a CSP’s Predicting churn and using proactive
and capabilities that are enabled by
value chain could result in a 10% techniques to retain customers
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 eliminating network operations
the biggest potential for savings in
activities centers (NOCs) leads to OpEx savings.
network operations, network
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,
organization-wide expenditure will not attention as if you’re
ready to make investment decisions
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
manage IT infrastructure and IT spending on usage-based public cloud
software and services. If the owner of services can surge dramatically. you’ll find a use for it.”
IT infrastructure has a powerful role Nathan Bell, Chief Digital Officer at
within the organization and can make M1, recognizes that operators need to
In the final section, we offer guidance
the case that private data centers are constantly monitor their usage of
CSPs can use to embrace new
an important part of the overall value public cloud in order to manage costs.
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
ahead of their competition with delivery of new functionalities
framework
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
fulfillment and orchestration provides complete coverage of scenarios
it leverages cloud automation tools
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 Framework can be extended to CSPs for
Benefits also include periodic
products to meet new business additional use and allows further savings
automated rollouts of new
needs in 5G, IoT, and optimizing the on the CSP’s side.
functionalities without the need for
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
the different modules for fast rollout include capabilities, such as:
open architecture
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
CSP leaders like Orange Group CEO As CSPs adopt open source and cloud
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

common processes. reduced hardware costs for Proximus by
A CSP’s open source 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
pace of development and innovation. Sunrise created a container- and
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 An open universal hybrid cloud for
Yenihan Kaya, Director of Network
common container platform should be cost reduction and revenue growth
Capabilities at Turkcell.
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
creating India's first Open Universal
5G edge computing sites. reduce cost
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 scalable through API-enablement.
n Wire them together in new ways
severely impact time to market. In
n Make them more accessible to Factoring in the above scenarios, we
most cases, they are not
customers and partners formulated a legacy decomposition
integration-friendly, as they support
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
into every stage of the development 1. Avoidance of operational challenges
Infact, it isn’t even a best practice to
and deployment lifecycles. The use with legacy such as frequent
move all capability. When we
of automated tests, Continuous hardware upgrades, time consumed
decompose legacy, we identify
Integration/Continuous Delivery in manual deployments, prolonged
application components and data that
(CI/CD) processes etc. is mandated, development and release cycles,
can be containerized. With a deliberate
reducing time-to-market and costs. frequent production deployment
and careful data migration strategy and
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 2. Hardware & Containerization –
stability through end-to-end
replaced with a third-party product or a Legacy systems traditionally are run
monitoring, system observability,
SaaS application. If the retained part on legacy hardware, which require
chaos-engineering. These aspects
exposes interfaces, it can be API- constant upgrades and capacity
align towards the SRE (Site
enabled as-is, using an integration tool. upliftment due to growing Digital
Reliability Engineering) discipline
The three models of co-existence and consumption and scaling needs.
that ensures smooth operations for
migration are shown in Fig 2: Models for Cloud Native is built on the
mission critical systems. The ability
legacy and cloud native to co-exist foundation of scalable and dynamic
to harness “as-a-service" models
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
Open Digital Framework

agility (accelerating concept-to-

Systems cash from 18 months to 18 days),
Business (IT & Network) enable simpler IT solutions that
are easier and cheaper to deploy,
Governance

integrate and upgrade, and to

establish a standardized software
Deployment model and market which benefits
& runtime Implementation
all parties (service providers, their
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