Our in-depth analysis of Microsoft’s play in the telecoms market, why it acquired Affirmed Networks and Metaswitch, and what telcos should do about it.
What is Microsoft doing, and should telcos be worried?
Over the past two years, Microsoft and its cloud business unit Azure have intensified and deepened their involvement in the telecoms vertical. In 2020, this included the acquisition of two leading independent vendors of cloud-native network software, Affirmed Networks and Metaswitch. This move surprised many industry observers, as it represented an intensification of Microsoft’s involvement in telco networking.
In addition, in September 2020, Microsoft announced its ‘Azure for Operators’ strategy. This packages up all the elements of Microsoft’s and Azure’s infrastructure and service offerings for the telecoms industry – including those provided by Affirmed and Metaswitch – into a more comprehensive, end-to-end portfolio organised around Microsoft’s concept of a ‘carrier-grade cloud’: a cloud that is truly capable of supporting and delivering the distinct performance and reliability that telcos require from their network functions, as opposed to the mainstream cloud devoted to enterprise IT.
In this report, our discussion of Microsoft’s strategy and partnership offer to telcos is our own interpretation based on our research, including conversations with executives from Microsoft, Affirmed Networks and Metaswitch.
We examine Microsoft’s activities in the telecoms vertical in the light of three central questions:
- What is Microsoft doing in telecoms, and what are its intentions?
- How should telcos respond to Microsoft’s moves and those of comparable hyperscale cloud providers? Should they consume the hyperscalers’ telco cloud products, compete against the hyperscalers, or collaborate with them?
- And what would count as success for telcos in relationship to Microsoft and the other hyperscalers? Are there any lessons to be learned from what is happening already?
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Microsoft’s telecom timeline
The last couple of years has seen Microsoft and Azure increasing their involvement in telecoms infrastructure and software while building partnerships with telcos around the world. This march into telecoms stepped up a level with Microsoft’s acquisition in 2020 of two independent virtual network function (VNF) vendors with a strong presence in the mobile core, among other things: Affirmed Networks and Metaswitch. Microsoft was not previously known for its strength in telco network software, and particularly the mobile domain – prompting the question: what exactly was it doing in telecoms?
The graphic below illustrates some of the key milestones in Microsoft’s steady march into telecoms.
Microsoft’s move on telecoms
Microsoft Azure’s key initiatives over the past two years have been to expand its involvement in telecoms, culminating in Microsoft’s acquisition of Affirmed and Metaswitch, and the launch of the Azure for Operators portfolio.
As a result of these initiatives, we believe there are five models of partnership and service delivery that Microsoft is now proposing to operators, addressing the opportunities arising from a convergence of network, cloud and compute. Altogether, these five models are:
Five business models for partnerships
- A classic telco-vendorrelationship (e.g. with Affirmed or Metaswitch) – helping telcos to evolve their own cloud-native network functions (CNFs), and cloud infrastructure and operations
- The delivery and management of VNFs and CNFs as a cloud service, or ‘Network Functions-as-a-Service’ (NFaaS)
- Enabling operators to pursue a hybrid-cloud operating model supporting the delivery of their own vertical-specific and enterprise applications and services, or Platform-as-a-Service (PaaS)
- Rolling out Azure edge-cloud data centres into telco and enterprise edge locations to serve as a cloud delivery platform for third-party application developers providing low latency-dependent and high-bandwidth services, or ‘Network-as-a-Cloud Platform’ (NaaCP)
- Using such Azure edge clouds – in enterprise and neutral facilities alongside telco edge locations – as the platform for full-fledged ‘net compute’ services, whether these are developed collaboratively with operators or not.
Table of Contents
- Executive Summary
- Microsoft wants to be a win-win partner
- What should telcos and others do?
- Next steps
- What is Microsoft doing, and should telcos be worried?
- What has Microsoft done?
- Microsoft’s telecom timeline
- What is Microsoft’s strategy?
- Microsoft’s five partnership and service models
- The ‘Azure for Operators’ portfolio completes the set
- 5G, cloud-native and net compute: Microsoft places itself at the heart of telco industry transformation
- Cellular connectivity – particularly 5G – is pivotal
- Telco-hyperscaler business models: What should telcos do?
- Different hyperscalers have different telco strategies: comparison between Azure, AWS and Google Cloud
- What should telcos do? Compete, consume or collaborate?
- Microsoft’s ecosystem partnership model: What counts as success for telcos?
- More important to grow the ecosystem than share of the value chain
- Real-world examples: AT&T versus Verizon
- Conclusion: Telcos should stay in the net compute game – and Microsoft wants be a partner
- Appendix 1: Analysis of milestones of Microsoft’s journey into telecoms
- Appendix 2: Opportunities and risks of different types of telco-hyperscaler partnership