Telco edge manifesto

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Since 2015 STL Partners has helped telecoms operators to develop their edge computing strategies. We summarise our learnings from those engagements as a manifesto for how the industry can address the edge computing opportunity.

Weathering the “trough of disillusionment”: Network edge will take off

The explosion of network edge is yet to happen

We estimate that fewer than 250 network edge sites had been built globally by the end of 2022. Most of these are concentrated in the US and China.

Number of network edge data centres globally, 2022

Source: STL Partners Network edge capacity forecast: The role of hyperscalers

While these deployments do represent progress, STL Partners believes that edge computing is firmly in the “trough of disillusionment” on Gartner’s hype cycle model.

To progress on to the “slope of enlightenment”, telcos must focus on four areas:

  1. Be their own customers of distributed compute first. If a telecoms operator is struggling to identify use cases for edge computing, then they should look no further than their own network workloads. As networks become increasingly cloudified these workloads will require distributed compute. Network workloads, particularly those required to operate the RAN, are truly demanding – telcos that can handle these latency-sensitive, mission-critical workloads should have a compelling case for then telling enterprise customers they can do the same for them. This holds particularly true for industries whose own operational technology (OT) workloads also have stringent performance requirements, such as those in the industrial sector.
  2. Finalise critical decisions that are slowing 5G SA roll out. Various factors have slowed the deployment of 5G SA networks, including the regulatory uncertainty surrounding the use of Huawei equipment and the delaying of spectrum auctions thanks to the COVID pandemic. This impacted markets across the world including India, Malaysia and Spain. However, another source of delay has stemmed from the apparent lack of clarity from telcos as to the best strategy for rolling out 5G networks. Telcos are still debating architectural questions such as pooling centralised units (CUs) in CU hotels versus deploying CUs alongside distributed units (DUs) and rack units (RUs) and the relative benefits of open RAN versus vRAN. While edge computing can be deployed with 4G networks (and is also being deployed in fixed networks), for most mobile operators, the two are interlinked. This is because it is in 5G standards that we see control and user plane separation, enabling the distribution of user plane functions doing packet processing to the edge and enabling local breakout of traffic.
  3. Stop seeing edge computing as a minor innovation programme and start to embrace distributed computing (for their networks and for other customer workloads) as operators’ defining identity. Almost all telcos focused their resources in the years 2020 to 2022 on their networks and core connectivity services, as they sought to handle the unparallel levels of network traffic during the pandemic. Logistical challenges prevented site upgrades and innovation programmes, such as those focused on edge computing, were deprioritised (more than 30% of respondents to an STL survey indicated a delay in their edge programme during the pandemic). For telcos to stand a chance of being market leaders in edge, they will need to change their investment priorities, putting the orchestration and management of distributed compute as the single most important priority.
  4. Take action on developments in the market suggesting customer demand for edge computing is maturing. These developments include but are not limited to:
    • Mature and commercialised anchor use cases that can be exploited. The clearest one of these is content delivery and optimisation. STL estimates that edge content delivery will be the most significant revenue-generating use case and will reach over US$58 billion in 2028. Proof points for this use case include announcements by telecoms operators that are hosting new, disaggregated CDN platforms in edge data centres. For example, Qwilt (a US-based edge content delivery platform) has partnered with multiple telcos in the last two years, including Vodafone, BT, Telefonica, stc and Bharti Airtel.
    • Major technology companies are forming strategies and making investments that will require edge infrastructure to support them as they scale. Examples of this are Meta’s metaverse announcements and Apple’s Vision Pro announcement, both of which signify the growth of augmented reality/virtual reality and immersive applications. Limitations of these products indicate a need for edge computing, including the need to have a battery attached to the headset to prevent it from being too heavy and the considerable price tag for the device.

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.

Total addressable revenues from edge computing, 2020-2030

Source: STL Partners Edge computing market sizing forecast: Second release

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.

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Table of Contents

  • Executive summary
  • Table of Figures
  • Weathering the “trough of disillusionment”: Network edge will take off 6
  • If not edge, then what? A comparatively low-risk way to move beyond connectivity
  • To scale and monetise edge, interoperability must be guaranteed
  • Humble but ambitious: A new approach to partnership models
  • Multiple routes to monetisation should be pursued
  • What should telcos do now?
  • What next: Get in touch to discuss your network edge strategy

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