Telco edge manifesto
STL Partners has been working with telecoms operators on developing their edge computing strategies since 2015. The following web page summarises the key learnings we have taken from those engagements and acts as a manifesto for how we feel the industry should be addressing the edge computing opportunity.
Weathering the trough of disillusionment: Network edge will take off
The explosion of network edge hasn’t happened… yet. Our estimations show that fewer than 250 network edge sites had been built by the end of 2022, and most of these are concentrated in the US and China.
While these deployments do represent progress, we believe that edge computing is currently firmly in the “trough of disillusionment. To progress beyond this, we believe telcos must focus on four key areas.
Number of network edge data centres globally, 2022
Source: STL Partners Network edge capacity forecast
By following these steps, telcos can effectively tap into the $445bn edge market
Total addressable revenues from edge computing, 2020-2030
Source: STL Partners Edge Computing Market Sizing forecast: Second release
If these four recommendations are followed the market opportunity for edge computing will be significant, and telcos will be in a strong position to address it. STL Partners forecast US$445 billion in total addressable revenues globally from edge computing by 2030.
It is important that telcos make informed and proactive investments in distributed compute infrastructure to ensure that they can scale fast enough to support software growth. Software applications can scale quickly due to the maturity of the cloud infrastructure and the tools underpinning them. Building the infrastructure, on the other hand, takes time and requires overcoming various logistical hurdles including the acquisition of land and hardware to start physically building it out. The speed at which software can scale cannot be better illustrated than by the explosion of use of OpenAI’s ChatGPT which, according to Reuters, reached 100 million monthly users just two months after its initial release and became the fastest-growing consumer application ever. Telcos need to act now to ensure they are in a position to serve the growing edge market.
If not edge, then what? A comparatively low-risk way to move beyond connectivity
Many operators have experience running cloud-native workloads in a distributed manner (there are more than 75,000 live cloud native distributed compute sites running telco workloads today). Telcos have developed know-how and expertise that they can build on to unlock synergies and develop network edge propositions ready for commercial use by third parties:
• Operators are in the process of building the processes, skills and teams to run distributed workloads, troubleshoot, add new hardware, and ensure operational control and management of the infrastructure.
• Automation capabilities as well as vendor maturation, pre-integration and new tools will reduce integration, deployment and service iteration timelines going forward.
• Cloudification is evolving traditional network sites (e.g. central offices) into data centre environments and freeing up physical space in these sites to make it possible to add infrastructure (servers) to host third-party workloads.
Telcos are already building a distributed edge cloud to support their network workloads. They can build on these capabilities with limited incremental investments to deliver commercial network edge services to their customers.
Incremental investments for network edge are comparatively low
Source: STL Partners analysis
Telcos can benefit from existing infrastructure while keeping workloads separate
Telcos are hesitant to use fully converged infrastructure platforms
Source: STL Partners survey, n=191, 2022
It is not true that telcos can only benefit from complementary investments if they use the same hardware infrastructure (and management systems) for network and edge workloads. From a survey of 191 stakeholders across the telco ecosystem we know that this is not a well-favoured deployment model – over half of respondents stated that the two domains remain separated.
Despite a lack of physical convergence, we believe that synergies will still be achieved through common tools, processes, and learnings which will unlock considerable efficiencies for operators as they build out network edge.
To scale and monetise edge, interoperability must be guaranteed
Interoperability is key to making the network edge attractive – we have highlighted how both technical and commercial challenges need to be overcome to enable a scalable network edge. Technically, this means allowing workloads to easily move between edge clouds, regardless of their network service provider and who owns the edge nodes. Commercially, it must be easy for edge customers to use edges, without interacting with each and every edge service provider.
Interoperability is critical to creating a consistent global experience
Source: STL Partners
Three scenarios for how network edge will be built and how interoperability will be achieved
Three potential scenarios for building the network edge
Source: STL Partners
There are three credible scenarios for how network edge will be built out and how interoperability will be achieved. We would argue that telcos put themselves in a stronger position to own their own destiny and be in the driving seat for network edge monetisation if they focus on making a success of scenarios two and/or three. This means investing time and resource in making federated edge possible, not just technically but commercially as well.
A significant cultural change is necessary to help telcos achieve the goal of a truly interoperable network edge. Telcos must reconsider their approach working with partners to build ecosystems around them and commit to openness via an API-first strategy.
Telcos should understand the limitations of working with hyperscalers
For many, when thinking of edge computing partnerships, the series of high-profile telco and hyperscalers partnership will come first to mind. It is not that these partnerships are not valuable nor that telcos should not consider collaborating with a hyperscaler, particularly when looking to seed the market and learn from the hyperscalers cloud sales expertise.
However, we do recommend that telcos put less emphasis on creating a hyperscaler strategy in and of itself and instead first identify their own business priorities and then allow these to inform whether a particular hyperscaler is in position to support this path.
Partner widely with solution partners and nurture them by minimising typical telco bureaucracy
Telcos are generally well-respected players in their local markets, with scaled access to many enterprises. This means that they have unique sales channels that many are eager to access. However, it is equally well-known that telcos are corporate organisations with lengthy decision-making processes, complex legal requirements and bureaucratic systems. This environment is very different to the lean, agile environment of software companies and the disconnect causes problems.
Telcos should therefore shield partners who are building solutions on top of telcos’ network edge infrastructure from legal and bureaucratic hurdles. They should also ensure that internal commitments have been made early so that, if successful, the partnership can gain more investment quickly.
Leading operators have already taken steps to engage more closely with crucial solutions partners and provide them with what they need to deliver value via edge infrastructure. One example of this is Verizon’s 5G Edge Developer Portal, built in collaboration with AWS. Verizon’s portal has clearly been built with solution providers in mind and demonstrates several areas of best practice, including:
• Clear explanations of the benefits of edge computing avoiding overly technical network jargon.
• Offers routes for companies to access freemium edge services in order to test the impact of edge on their application ahead of any monetary investment.
• Focus on making edge accessible in an automated fashion (e.g. via APIs) which means solution providers do not have to spend significant amounts of time interacting with the telco to stand up an edge instance.
Telcos should also consider ways to tap into ecosystems built up by parties beyond just the hyperscalers, including hardware and chipset players like Dell, Nvidia and Intel.
Multiple routes to monetisation should be pursued
We have identified five models that telcos should pursue for monetising the network edge.
The right monetisation strategy will depend on the operator, its position in the market, its strengths and weaknesses, and its investment model. However, the value operators can expect to capture will increase significantly moving from left to right, from simply providing the physical space and connectivity all the way to applications and solutions. We forecast end-software application revenues to account for just over 50% of the total addressable value stemming from edge computing by 2025
Five models for network edge monetisation
Source: STL Partners
What should telcos do today?
Invest in anchor use cases beyond network workloads to seed market adoption
Form solution-specific cross-domain teams
Take practical learnings from participating in on-premise edge deployments too
Build industry leading expertise in running and managing distributed cloud
What next: Get in touch to discuss your network edge strategy
STL has built a centre of excellence around edge computing and has been advising businesses for over six years
We have supported clients across 90+ projects to develop their commercial strategy for edge computing. We have worked with more than 15 major telecoms operators including advising on a hyperscaler partnership negotiation. Our team of experts includes leading industry analysts and consultants, IoT practitioners as well as cloud specialists.
Our industry-leading edge research service offers subscribers the following:
Database of 50+ use cases for MEC, private networks edge and on-premises edge
• Interactive model forecasting the edge computing market
• Interactive model forecasting the buildout of network edge sites
• Ecosystem tool mapping 350+ vendors across the edge value chain
• In-depth analysis of opportunities and threats via our research reports