Telco cloud: a key growth enabler of the Coordination Age

The Coordination Age is coming

As we have set out in our company manifesto, STL Partners believes that we are entering a new ‘Coordination Age’ in which technological developments will enable governments, enterprises, and consumers to coordinate their activities more effectively than ever before. The results of better and faster coordination will be game-changing for society as resources are distributed and used more effectively than ever before leading to substantial social, economic, and health benefits.

A critical component of the Coordination Age is the universal availability of flexible, fast, reliable, low-latency networks that support a myriad of applications which, in turn, enable a complex array of communications, decisions, transactions, and processes to be completed quickly and, in many cases, automatically without human intervention. The network remains key: without it being fit for purpose the ability to match demand and supply real-time is impossible.

Historically, telecoms networks have been created using specialist dedicated (proprietary) hardware and software. This has ensured networks are reliable and secure but has also stymied innovation – from operators and from third-parties – that have found leveraging network capabilities challenging. But the Coordination Age requires more from the network than ever before – applications require the network to be flexible, accessible and support a range of technical and commercial options. The network must be able to impart actionable insights and flex its speed, bandwidth, latency, security, business models and countless other variables quickly and autonomously to meet the needs of applications using it. Telco cloud is the enabler of this future.

Telco cloud: a new approach to the network…

STL Partners has long argued that operator network-driven capital expenditure is not the means to growth. Instead, operators should shift resources towards operating expenditure which can be more easily redeployed where it is needed – proportionally more OpEx would enable operators to change direction quicker rather than being caught in ten-year capex cycles centred on the latest network generation.

Telco cloud is central to this shift to operating expenditure. We are not suggesting that network capex disappears. It is, and will, remain an integral part of the telecoms financial and operational model. But the implementation of a software-defined network enables operators to negotiate use-based licensing from vendors – they can enjoy the same reduction in risk and increased flexibility from their suppliers that other enterprises are seeking in their ICT solutions.

…a fundamental shift in what it means to be an operator…

The move to cloud native represents a fundamental shift in what it actually means to be an operator in the Coordination Age. It lies at the heart of a broader business model change in terms of how telcos operate, not only from a technology standpoint but more importantly in terms of culture, processes, decision-making, incentives and the overall organisation.

The new normal within the industry will be about how effectively operators can adopt continuous integration-continuous deployment (CICD) pipelines and build an innovation flywheel. Telco cloud is not just about technology, it is about changing the operating model, moving to a DevOps/CICD model that enables operators to pursue agile product/service development. Without this, the new flexible Telco cloud infrastructure is pointless because customers will not pay more for connectivity enabled by a Telco cloud network: they will only pay more for additional services. And these additional services require operators to move beyond connectivity and match the rapid innovation achieved by the internet players and other technology companies.

…and a driver for future telecoms differentiation and growth

Telecoms operators often talk about moving beyond connectivity: Telco cloud is the means of enabling this because the network behaves like and integrates with the applications that run on it. Operators that embrace telco cloud technologies and practices will have gained the skills required to successfully develop applications that are enabled by the network. Indeed, the ability to integrate applications with the network should become the telecoms industry’s fundamental competitive advantage. That is not to say operators shouldn’t open up their networks to third-party applications – they should – but their knowledge and expertise in network development means that their own applications should integrate more efficiently and effectively: they should perform better than those provided by ‘OTT’ players for whom the network remains an obstacle rather than an enabler.

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Realising the telco cloud vision

Moving to telco cloud is challenging

While the rationale for embracing telco cloud is clear, there are three factors that are slowing the industry’s movement:

Different operator segments will take different paths

While the move to more virtualised networks may be inevitable, the end goal and the pathways for getting there can vary widely from operator to operator. The reality is that relatively few operators can themselves take on the risk of a pure ‘best of breed’ approach to telco cloud. The resources required to design, test, integrate, and manage an open ‘best of breed’ solution are too high for all but the very largest operators. Most players will need to compromise between the benefits and shortcomings of the old network model and those of the new.

While all telcos are different, we see at least three segments and associated telco cloud implementation models developing. No one model is right for all circumstances (or for all telcos): each is appropriate for the characteristics of that segment and each requires the telco to think about how it can best maximise the benefits of telco cloud while minimising implementation risks.

We outline three generic telco cloud implementation models below and some of the considerations for operators adopting each model.

At STL Partners, we see a clear rationale for telco cloud beyond more flexible, agile, cost-effective, OpEx-centric networks and operations. Telco cloud is also about enabling further telecoms differentiation and growth through application and use case-specific networking, and ultimately about creating technology, practices and organisations fit for the Coordination Age.

Many telco operators today are grappling with whether they should be driving progress in telco cloud more proactively or wait for the industry to coalesce (with industry standards, maturity of vendor solutions). The key questions that telcos should ask themselves are:

1. What do you see as your core competencies and what value are you trying to provide as part of that?
2. Recognising your key strengths and limitations, how willing are you to take risks in driving innovation yourself, rather than letting competitors and potential disruptors steal the lead?

Choosing a more cautious approach and failing to innovate is in itself a significant strategic risk and telecoms operators should recognise that moving too slowly can also be a risky strategy, and that their existing business model is under greater threat than they realise. This includes the risk of not realising who the competition is and shaping up to them, as well as the dangers of not being able to capitalise new opportunities arising from 5G.

For more information and the full Telco Cloud manifesto, please see download the full report.

Author

David Martin

Senior Analyst

David Martin has specialised on telco cloud at STL Partners since 2016, writing numerous strategic reports on different aspects of the topic. He also originated STL’s Telco Cloud Deployment Tracker: a major database of commercial telco cloud deployments by leading telcos worldwide. He is a telecoms analyst of around 25 years’ experience. David obtained a First Class degree in French and German at Trinity Hall, Cambridge, where he also pursued doctoral studies in French.