Based on operator interviews and market understanding, STL Partners mapped telco approaches to cloud native across two dimensions with the aim of drawing insights and wider recommendations for all telco leaders considering their stance on cloud native.
Dimension 1 (the horizontal axis) reflects differences in telcos’ operating model visions, ambitions and capabilities. Dimension 2 (the vertical axis) is a measure of the operators’ market outlook expressed as the perceived level of pressure on their current business model.
Operators’ change ambition (dimension 1) can vary from “cautious evolution” to “ambitious transformation”:
- Some operators are more cautious about their own capabilities and accordingly, their expectations on how they would deploy cloud native network code. They see themselves as operating others’ technology delivered to them in a turnkey fashion. This is more akin to how legacy networks have been deployed and managed. By limiting or deferring change and adopting a best-of-suite approach, they hope to evolve to cloud native operations over time. These tend to be smaller operators with significant legacy operations. These operators’ customer-facing teams have little visibility of or see little relevance for their customers in cloud native networking.
- Other operators, with more ambitious transformation objectives, anticipate that they take a stronger, hands-on, more accountable approach in combining and operating others’ technology, potentially from multiple suppliers. This is more akin to how cloud native applications are managed in enterprise IT domains. At their heart, these operators see themselves as software-based technology firms. Although these tend to be larger operators or operator groups, we also found some smaller operators with a strong automation focus that fall into this group. Customer-facing teams also understand what cloud native networking means in practice and what it enables for customers.
Telco perceptions of current business model pressure (dimension 2) ranges from “current model remains viable” to “current model is unviable”:
- Some operators recognise that they are experiencing considerable immediate pressures on their existing telco models. Consumer revenues are in decline, due to intensifying competition from other operators, including current challengers and new entrants. Strong local tech competitors (including the hyperscalers) also constrain the opportunities for operators to grow their ‘share of wallet’ from enterprises. This being all the harder with largely undifferentiated applications and solutions. This pressure on revenues is coupled with a new wave of (5G) investment and a substantial ongoing cost base. The leadership knows that things must change and fast.
- Other operators perceive that they face less pressure on their existing telco model. It may be that consumer demand and connectivity revenues are still growing for them and competition may have been less intense (e.g. a duopoly). These operators believe that they are in a strong position to expand their service offerings to enterprises without having to be particularly innovative; in many cases they have trusted brands and are seen as local tech leaders by enterprises and consumers. Regulatory and/or geographic market characteristics may provide barriers to entry. Although there are undoubtably operators who enjoy a favourable market environment, this is a shrinking group. Furthermore, perceptions can be misleading. They may be in for a shock.
STL Partners report Cloud native: Just another technology generation? contains recommendations for the leadership of telcos in each of the resultant four broad groups.