Digital Transformation Requires a "Subscriber-First" Approach

Publication Date: 13 January 2017
Kris Szaniawski
Digital Transformation Requires a
"Subscriber-First" Approach
Leveraging DNS to Enhance the Digital Lifestyle

Digital Transformation Requires a "Subscriber-First" Approach
© 2017 Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 2
Executive Summary
Catalyst
Communications service providers (CSPs) are under intense competitive pressure to increase
revenues and strengthen subscriber loyalty in markets around the globe. In order to thrive in this
environment where over-the-top (OTT) players and other providers have utilized CSP networks to
deliver innovative services, CSPs are now primed and ready to undergo digital transformation and
develop new digital products and services that enhance the digital lifestyle of their subscribers.
Extensible DNS-based platforms and subscriber-centric applications are key enablers of digital
transformation. They offer a more complete view of the customer and provide greater service agility to
put subscribers in control of their own digital experiences.
Once considered to simply be the “phone book” of the internet, the domain name system (DNS) has
moved beyond the realm of passive internet look-up functionality and is now at the heart of digital
transformation.
This report, conducted by Ovum's team of researchers and based on a global survey of 100 service
providers, examines the benefits CSPs can gain from leveraging DNS to power their digital
transformation efforts. It explores the changing business needs of CSPs, and how DNS contributes to
a "subscriber-first" approach by optimizing the subscriber's internet experience and delivering
personalized and differentiated services.
Key messages
 Reducing time to market for new services is a primary focus for CSPs, as is the need to
establish a subscriber-first approach to improve customer engagement and strengthen brand
loyalty.
 Security- and identity-based services are a clear CSP investment priority; research suggests
that over 40% of CSPs have allocated budget to launch new security- and identity-based
services in 2017.
 Understanding customer activity across all devices is a key component of digital
transformation. It is important that CSPs discover new ways to manage customer activity,
beyond relying on legacy data sources.
 DNS is an asset that all operators have access to, and it offers many benefits that can protect
subscribers and children online, and provide proactive cyber defense against malicious
attacks. DNS data can also be used to improve a subscriber’s online experience, support
personalization, improve customer interaction, and deliver new value-added services.
DNS data can also be used to improve the customer internet experience, support
personalization, improve customer interaction, and deliver new value-added
services.

Recommendations for CSPs
 CSPs require extensible platforms and applications to gain a holistic view of the customer,
enable real-time, personalized control and deliver value-added services that enhance the
digital lifestyle. DNS leads the list of enabling technologies, which also includes established
deep packet inspection (DPI), business intelligence (BI), and CRM data analytics.
 Too many in the industry are still unaware of the potential of DNS to personalize the customer
experience and support a more subscriber-focused approach.
 CSPs need to make better use of new platforms and applications to accelerate digital
transformation, and in particular they need to leverage DNS data to deliver increased
personalization and meaningful customer interactions as they offer new value-added services.
Such capabilities can be rolled out relatively quickly and inexpensively by leveraging an
extensible DNS-based infrastructure.
 CSPs are increasingly evaluating niche/vertical software vendors as digital transformation
partners. This trend will continue due to the growing importance of security and the need to
deliver a real-time, end-to-end (E2E) view of customer activities.
Business Impacts
Market and business challenges
CSPs are under intense pressure in markets that are becoming more competitive and more proactive
in jumpstarting digital transformation initiatives. However, a successful digital service provider (DSP)
operating model is a complex framework involving many elements (see Figure 1), not the least of
which is the use of new platforms and applications to deliver more agile, flexible and personalized
services in order to support the subscriber's digital lifestyle.
Figure 1: Moving to a digital service provider operating model
Source: Ovum

CSPs are well placed to adopt a more customer-centric approach, given the huge network,
operations, service and customer data resources to which they have access. Operators have an
opportunity to improve how they both integrate and make use of all of their data resources to support
various business-driven challenges, which include the following:
Reduce time to market: The long lead times for rolling out new services have a significant impact on
both revenues and customer satisfaction levels. CSPs need automation, a policy-driven approach,
and real-time information to accelerate business decision-making. Ovum's CSP survey shows that
reducing time to market is the number one concern (see Figure 2).
Improve business agility: CSPs know they need to be highly responsive to client needs in order to
compete with OTT players. To support greater service agility and flexibility, CSPs are looking to
deploy predictive and contextually aware systems and analytics and a more flexible approach to
reporting, data aggregation and real-time visibility of key operational metrics. These capabilities will
enable delivery of the real-time personalized services that online customers increasingly demand.
Increase customer satisfaction: A subscriber-first approach is needed to improve customer
engagement and loyalty. CSPs are looking to automate and enhance the customer internet
experience at critical digital touchpoints.
Provide new value-added services: By offering personalized, subscriber-centric services, CSPs can
realize greater top-line growth.
Figure 2: How important is it to deal with the following challenges within your business?
Source: Ovum

Technical challenges
The technical challenges facing CSPs are many, but some issues, such as strengthening security,
improving wireless access and obtaining an E2E view of customer activity, are particularly acute.
Security is one of the biggest concerns for CSPs – in particular defending against malicious attacks
such as ransomware, malware and distributed denial-of-service (DDoS). This is borne out by the
Ovum survey which suggests that protecting the network from malicious attacks is now viewed by
operators as the most critical technology challenge (see Figure 3).
CSPs need to be able to deliver a growing list of capabilities that ensure subscriber safety, secure
transactions, protect against botnets and provide identity/malware protection – ideally in a proactive
manner. The increasing breadth and sophisticated nature of threats suggest the need for a "defense
in depth" approach that makes use of multiple layers of security control. Ideally, this approach will
combine more traditional methods with security and compliance solutions and intelligence-gathering
tools, including big data security intelligence and analytics initiatives, and DNS-centric security
approaches.
The need to obtain an E2E view of customer activity is deemed nearly as important. This concern is
highlighted by the survey results, in which operators prioritize, over other network challenges, the
need to obtain an E2E view of subscriber online activity across different devices. This is no surprise
as operators need an E2E view of customer activity to deliver/enable integrated services, premium
bundles and value-added services, as well as better targeted upgrades, promotions, notifications and
usage alerts. Furthermore, these insights need to be delivered close to real-time to drive greater
subscriber value.
However, it is important to note that all of the technology concerns listed in the Ovum survey are
viewed as significant. None of them score low, which is an indication of the extent and seriousness of
the issues facing CSPs and the need to adopt an integrated approach to address them.
Security is one of the biggest concerns for CSPs – in particular defending against
malicious attacks such as ransomware, malware and distributed denial-of-service (DDoS).

Figure 3: What are the most critical technology challenges facing your business currently?
Source: Ovum
Investment priorities
To drive more business growth, rolling out and supporting new value-added services (e.g. parental
controls) is currently the most urgent investment aim for CSPs, as confirmed by the Ovum survey.
This is closely followed by the need to monetize the customer, including understanding and
anticipating customer needs, and enabling relevant and compelling communications and upsell
opportunities.
Security concerns are also viewed as important to CSPs, but the metric scores slightly less than the
need to develop new services to support the digital lifestyle of its subscribers. This may seem
Rolling out and supporting new value-added services (e.g. parental controls) is
currently the most urgent investment aim for CSPs, as confirmed by the Ovum
survey. This is closely followed by the need to monetize the customer, including
understanding and anticipating customer needs and enabling relevant and
compelling communications and upsell opportunities.

paradoxical since implementing a network security solution is considered crucial, but the
incongruence here reflects the intense pressure CSPs are under to generate new revenues and
demonstrate measurable growth.
As CSPs strive to increase metrics such as average profit per user (APPU) and average revenue per
user (ARPU), they are looking to provide new services and a differentiated customer internet
experience through improved customer interactions, more effective cross-sell and upsell, delivery of
subscriber-defined content control and greater personalization.
New Subscriber-facing Services
The opportunity for subscriber-facing services
This section looks at the relative importance of new digital services and where CSPs are directing
their current investments. Fast delivery of these services is important in terms of a CSPs
competitiveness and growth, but such service delivery also involves business and technical
challenges.
Security- and identity-based services are a clear CSP investment priority; over 40% of CSP
respondents have allocated budget to launch such services within the next 12 months (see the light
green responses in Figure 4).
The scope of security services is extensive and includes both subscriber safety (e.g. protecting
devices, shielding networks, protecting subscribers from phishing and malware, providing security
breach notifications) and content compliance (e.g. blocking prohibited online content). Internet
personalization (e.g. subscriber-defined content control at both household and device level, parental
controls and monitoring, tailored alerts) is also closely linked.
Figure 4: Has your company allocated budget to any of the following services?
Source: Ovum

By contrast to security and identity-based services, mobile payments/financial services and digital
content delivery services are more mature areas where services have already been launched, while
machine-to-machine/internet of things (M2M/IoT) services are at an earlier stage in the investment
cycle.
Benefits of new services: Personalized subscriber-facing services have the potential to increase
subscriber spend, and, perhaps even more importantly, these services can attract new customers
while retaining existing ones.
The personal nature of offerings such as advanced parental controls and internet personalization (e.g.
setting screen time and content permissions for family members, monitoring and changing services
features) helps CSPs enhance customer loyalty. The use of "live" internet triggers to activate
customer messages is another form of personalization that can be used to boost customer
satisfaction and reduce churn.
Given that customer acquisition costs exceed retention costs four to one, improving customer
retention and the lifetime value of a customer is critical.
The challenges of delivering new subscriber-facing services
While demand for digital services is strong, there are digital transformation challenges facing CSPs in
order to deliver them.
The lack of an E2E view of business processes and a shortage of internal technical expertise are the
two biggest concerns for CSPs. A large proportion of surveyed operators described these as
"extremely difficult" challenges. To adopt a more customer-centric strategy and support the types of
services described earlier in this section, CSPs are looking to gain a real-time E2E view of customer
activity.
Obtaining actionable insights across multiple devices is seen as something that is important to aim for
but difficult to achieve. As M2M/IoT increases the number of connected devices, this need will grow.
Other issues operators face include the lack of clear internal champions, the difficulty of justifying the
cost of creating new services and many business/operational process issues. Clearly CSPs feel
burdened by the wide range of issues they need to overcome.
Lastly, most CSPs are still relying heavily on customer relationship management (CRM) data and
billing/payment information as their predominant source of data when analyzing business problems
such as customer churn or declining customer satisfaction levels. They are underusing potentially rich
sources of interaction data such as website data, social media data and in-browser and online
surveys. Additionally, the value that DNS data provides in delivering a single view of the customer is
often misunderstood by CSPs.
Leveraging DNS to support subscriber-facing services
Almost a quarter of operators are unaware of the power of DNS in informing and potentially improving
the customer experience, according to the global survey.

DNS is primarily viewed by CSPs as a means to protect subscribers and children online, defending
against malicious attacks (e.g. malware, DDoS), preventing fraud or blocking inappropriate content
(see Figure 5).
The capacity for DNS to enhance growth is not rated particularly high. CSPs appear to understand
that DNS-enabled services can adjust security controls in real time, but their perception is that this
same capability cannot be used to support personalization, subscriber-defined content control,
customer communication and cross-sell. And, as we saw earlier, there is an urgent need to roll out
new value-added services to increase profit. There is a clear mismatch between perception and
reality.
Figure 5: How important are the following DNS-enabled services to your business?
Source: Ovum
DNS data is clearly overlooked as CSPs struggle to get a single view of the
customer.

Vendor partners
CSPs often play it safe with their choice in a digital transformation partner, citing large software
vendors and network equipment providers as the players they are most likely to consider in support of
their digital transformation efforts. There is a tendency for CSPs to choose a big-name vendor, safe in
the knowledge that the vendor will make things work for them or risk damaging its own brand.
However, niche/vertical software vendors are also increasingly making operator short lists, suggesting
that there is increasing confidence in their capabilities despite their size. When asked what type of
vendor they would most likely choose to support their digital transformation efforts, 92% of CSPs
expressed a positive view of niche/vertical software vendors.
Although the big names will remain attractive, we expect niche/vertical software vendors to appear
with greater regularity on CSP short lists, especially where they have the ability to address security
issues (which are an increasingly high priority for CSPs) and also offer platforms that enable the
personalization of a subscriber's online experience that supports a "subscriber-first" approach.
Appendix
Author
Kris Szaniawski, Practice Leader, Service Provider Operations & IT
kris.szaniawski@ovum.com
Ovum Consulting
We hope that this analysis will help you make informed and imaginative business decisions. If you
have further requirements, Ovum's consulting team may be able to help you. For more information
about Ovum's consulting capabilities, please contact us directly at consulting@ovum.com.
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Digital Transformation Requires a "Subscriber-First" Approach

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