VNFs on public cloud: Opportunity, not threat

VNF deployments on the hyperscale cloud are just beginning

Numerous collaboration agreements between hyperscalers and leading telcos, but few live VNF deployments to date

The past three years have seen many major telcos concluding collaboration agreements with the leading hyperscalers. These have involved one or more of five business models for the telco-hyperscaler relationship that we discussed in a previous report, and which are illustrated below:

Five business models for telco-hyperscaler partnerships

Source: STL Partners

In this report, we focus more narrowly on the deployment, delivery and operation by and to telcos of virtualised and cloud-native network functions (VNFs / CNFs) over the hyperscale public cloud. To date, there have been few instances of telcos delivering live, commercial services on the public network via VNFs hosted on the public cloud. STL Partners’ Telco Cloud Deployment Tracker contains eight examples of this, as illustrated below:

Major telcos deploying VNFs in the public cloud

Source: STL Partners

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Telcos are looking to generate returns from their telco cloud investments and maintain control over their ‘core business’

The telcos in the above table are all of comparable stature and ambition to the likes of AT&T and DISH in the realm of telco cloud but have a diametrically opposite stance when it comes to VNF deployment on public cloud. They have decided against large-scale public cloud deployments for a variety of reasons, including:

  • They have invested a considerable amount of money, time and human resources on their private clouddeployments, and they want and need to utilise the asset and generate the RoI.
  • Related to this, they have generated a large amount of intellectual property (IP) as a result of their DIY cloud– and VNF-development work. Clearly, they wish to realise the business benefits they sought to achieve through these efforts, such as cost and resource efficiencies, automation gains, enhanced flexibility and agility, and opportunities for both connectivityand edge compute service innovation. Apart from the opportunity cost of not realising these gains, it is demoralising for some CTO departments to contemplate surrendering the fruit of this effort in favour of a hyperscaler’s comparable cloud infrastructure, orchestration and management tools.
  • In addition, telcos have an opportunity to monetise that IP by marketing it to other telcos. The Rakuten Communications Platform (RCP) marketed by Rakuten Symphony is an example of this: effectively, a telco providing a telco cloud platform on an NFaaS basis to third-party operators or enterprises – in competition to similar offerings that might be developed by hyperscalers. Accordingly, RCP will be hosted over private cloud facilities, not public cloud. But in theory, there is no reason why RCP could not in future be delivered over public cloud. In this case, Rakuten would be acting like any other vendor adapting its solutions to the hyperscale cloud.
  • In theory also, telcos could also offer their private telcoclouds as a platform, or wholesale or on-demand service, for third parties to source and run their own network functions (i.e. these would be hosted on the wholesale provider’s facilities, in contrast to the RCP, which is hosted on the client telco’s facilities). This would be a logical fit for telcos such as BT or Deutsche Telekom, which still operate as their respective countries’ communications backbone provider and primary wholesale provider

BT and Deutsche Telekom have also been among the telcos that have been most visibly hostile to the idea of running NFs powering their own public, mass-market services on the public and hyperscale cloud. And for most operators, this is the main concern making them cautious about deploying VNFs on the public cloud, let alone sourcing them from the cloud on an NFaaS basis: that this would be making the ‘core’ telco business and asset – the network – dependent on the technology roadmaps, operational competence and business priorities of the hyperscalers.

Table of contents

  • Executive Summary
  • Introduction: VNF deployments on the hyperscale cloud are just beginning
    • Numerous collaboration agreements between hyperscalers and leading telcos, but few live VNF deployments to date
    • DISH and AT&T: AWS vs Azure; vendor-supported vs DIY; NaaCP vs net compute
  • Other DIY or vendor-supported best-of-breed players are not hosting VNFs on public cloud
    • Telcos are looking to generate returns from their telco cloud investments and maintain control over their ‘core business’
    • The reluctance to deploy VNFs on the cloud reflects a persistent, legacy concept of the telco
  • But NaaCP will drive more VNF deployments on public cloud, and opportunities for telcos
    • Multiple models for NaaCP present prospects for greater integration of cloud-native networks and public cloud
  • Conclusion: Convergence of network and cloud is inevitable – but not telcos’ defeat
  • Appendix

Related Research

 

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Why telcos need to capture the edge opportunity now

Why telcos need to capture the edge opportunity now

This report is based on an interview programme that STL Partners conducted in the months of July and August 2021. The interview programme consisted of 17 interviews: 13 with operators and 4 with enterprises. More information about the telecoms interviewees can be found below.

Figure 1: Interviewee profiles across telcos and enterprises

We asked operators and enterprises about the role of edge computing within their organisations, as well as their overall technology strategy. We investigated the key use cases they were exploring, their view on ecosystem partnerships and their vertical targeting strategy to understand: How can operators capture the edge opportunity?

Table of Contents

Executive Summary……………………………………………………………………………………………………………………………..2
Telco edge computing is now…………………………………………………………………………………………………………..2
Key takeaway: telcos must take a pragmatic approach going forward …………………………………………..2
Preface…………………………………………………………………………………………………………………………………………………5
Introduction………………………………………………………………………………………………………………………………………….7
Edge progress to date: laying the groundwork…………………………………………………………………………………….8
Building the 5G foundation has been the priority ……………………………………………………………………………..8
Private cellular network solutions are gaining traction …………………………………………………………………..10
Operators have been undergoing an education process………………………………………………………………..11
Clarity around use cases has allowed telcos to more actively engage the ecosystem………………….11
The inflection point: how to capture demand for edge computing through focused strategies ……….13
Vertical strategy………………………………………………………………………………………………………………………………13
Horizontal strategy………………………………………………………………………………………………………………………….18
Partnerships must underpin any successful edge strategy ………………………………………………………………20
Conclusion………………………………………………………………………………………………………………………………………….23

Further reading

STL Partners has an extensive catalogue of edge research, which can be found on our Edge Computing hub. These reports provide an overview of edge, an examination of the telco opportunities and challenges in pursuing edge, and the role of 5G in edge. We recommend reading the following articles and reports before pursuing this report to provide sufficient context.