The three telco Metaverse strategies

The Metaverse offers opportunities beyond connectivity for telcos

The Metaverse is the increasingly accepted term for a set of interconnected virtual worlds. One way to think about the Metaverse is to see it as a 3D version of the world wide web in which organizations operate their own virtual 3D worlds, rather than 2D web sites. Represented by avatars, visitors to a virtual world can interact with other users or with avatars controlled by artificial intelligence. The term Metaverse entered the popular consciousness when Facebook renamed itself Meta in October 2021.

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The renaming of Facebook sparked a surge of interest in the Metaverse

Source: Google Trends

Whereas the existing Internet is essentially a 2D digital overlay of the world, composed of text, voice, images and video, the Metaverse will provide a 3D digital overlay. This is the way Nvidia’s CEO Jensen Huang, portrayed the Metaverse in a speech in November 2021. As a leading provider of graphics chips, Nvidia is thinking deeply about how to build a business case for the Metaverse, which could drive rapid growth in demand for its products.

For a fully immersive experience, the Metaverse will need to be accessed through virtual reality (VR) headsets, but it could also be explored by moving through 3D environments using a conventional handset, laptop or television. Indeed, it is important to stress that the fortunes of the Metaverse won’t necessarily depend on the fortunes of VR. Hundreds of millions of people already play video games in 3D, interacting with each other, without wearing headsets.

The Metaverse looks set to host both entirely fictional virtual spaces where people can socialise, play and enjoy entertainment, as well as simulations of the real world, where people can test new product designs, learn new skills or watch concerts and sports events they can’t attend in person.

The first part of this report considers how the Metaverse could create value and the obstacles that lie in its way. It also outlines the strategies of Improbable, Meta (formerly Facebook), Microsoft and Nvidia – four companies developing many of the key enabling technologies.

The second part explores the Metaverse strategies of telcos. Broadband networks and related telco services are fundamental to the smooth running of digital environments today, and will be the building blocks of the Metaverse. We believe that telcos could play a coordination role that will help prevent the Metaverse from fragmenting into silos that are unable to interoperate with each other.

Our landmark report The Coordination Age: A third age of telecoms explained how reliable and ubiquitous connectivity can enable companies and consumers to use digital technologies to efficiently allocate and source assets and resources. In the case of Metaverse, telcos can help people and businesses to interact and transact with each other safely and securely in 3D environments.

As it considers the opportunities for telcos, this report draws on the experiences and actions of SKT, Telefónica and Verizon, which are each deploying strategies to help coordinate the development of the Metaverse.

Executive Summary
Introduction
What is the Metaverse for?
- The lure of the virtual road
- Corporate worlds take over from web sites
- Dominance or democracy?
- The non-fungible flexibility paradox
- Facebook pursues metamorphosis
- Microsoft has most of the pieces
What will the Metaverse mean for telcos?
- Recreating the real world is challenging
- Traffic implications for telcos
- Opportunities for telcos
- SK Telecom – the full stack standard bearer
- Telefónica looks to play coordination role
- AT&T and Verizon – connectivity plus edge
Conclusions
Index

Related Research

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Scaling private cellular and edge: How to avoid POC and pilot purgatory

Evaluating the opportunities with private cellular and edge

The majority of enterprises today are still at the early stages of understanding the potential benefits of private cellular networking and edge computing in delivering enhanced business outcomes, but the interest is evident. Within private cellular for example, we have seen significant traction and uptake globally during 2020 and 2021, partially driven by increased availability and routes to spectrum due to localised spectrum licensing models across different markets (see this report). This has resulted in several trials and engagements with large companies such as Bosch, Ford, Rio Tinto, Heathrow Airport and more.

However, despite the rising interest, enterprises often encounter challenges with a lack of internal stakeholder alignment or the inability to find the right stakeholder to be accountable and own the deployment. Furthermore, many enterprises feel they lack the expertise to deploy and manage private networking and/or edge solutions. In some cases, enterprises have also cited a lack of maturity in the device and solution ecosystem, for example with lack of supported (or industry-grade) devices which have a 5G/LTE/CBRS capability embedded in them, or a significant inertia in the installed base around other connectivity solutions (e.g. Wi-Fi). Therefore, despite the value and business outcomes that private cellular and edge compute can unlock for enterprises, the opportunity is rarely clear-cut.

Our research is based on findings and analysis from a global interview programme with 20 enterprises in sectors that are ahead in exploring private cellular and edge computing, primarily in the industrial verticals, as well as telecoms operators and solutions providers within the private cellular and edge computing ecosystem.

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Telcos see private cellular and edge as two peas in a pod…

Telecoms operators see private cellular and edge computing as part of a larger revenue opportunity beyond fixed and public cellular. It is an opportunity for telcos to move from being seen as horizontal players providing increasingly commoditised connectivity services, to more vertical players that address value-adding industry-specific use cases. Private cellular and edge compute can be seen as components of a wider innovative and holistic end-to-end solution for enterprises, and part of the telcos’ ambition to become strategic partners or trusted advisors to customers.

We define a private cellular network as a dedicated local on-premises network, designed to cover a geographically-constrained area or site such as a production plant, a warehouse or a mine. It uses dedicated spectrum, which can be owned by the enterprise or leased from a telco operator or third party, and has dedicated operating functions that can run on the enterprise’s own dedicated or shared edge compute infrastructure. Private cellular networking is expected to play a key role in future wireless technology for enterprise on-premises connectivity. Private cellular networks can be configured specifically to an individual enterprise’s requirements to meet certain needs around reliability, throughput, latency etc. to enable vertical-specific use cases in a combined way that other alternatives have struggled to before. Although there are early instances of private networks going back to 2G GSM-R in the railway sector, for the purpose of this report, we focus on private cellular networks that leverage 4G LTE (Long Term Evolution) or 5G mobile technology.

Figure 1: Private cellular combines the benefits of fixed and wireless in a tailored way

Source: STL Partners

Edge compute is about bringing the compute, storage and processing capabilities and power of cloud closer to the end-user or end-device (i.e. the source of data) by locating workloads on distributed physical infrastructure. It combines the key benefits of local compute, such as low latency, data localisation and reduced backhaul costs, with the benefits of cloud compute, namely scalability, flexibility, and cloud native operating models.

Figure 2: Edge computing combines local and cloud compute benefits to end-users

Source: STL Partners

Within the telecoms industry, private cellular and edge computing are often considered two closely interlinked technologies that come hand-in-hand. Our previous report, Navigating the private cellular maze: when, where and how, explored the different private cellular capabilities that enterprises are looking to leverage, and our findings showed that security, reliability and control were cited as the most important benefits of private cellular. In many ways, edge compute also addresses these needs. Both are means of delivering ultra-low latency, security, reliability and high-throughput real time analytics, but in different ways.

…but this is not necessarily the case with enterprises

Although the telecoms industry often views edge computing and private cellular in the same vein, this is not always the case from the enterprise perspective. Not only do the majority of enterprises approach edge computing and private cellular as separate technologies, addressing separate needs, many are still at the early stages of understanding what they are.

There is oftentimes also a different interpretations and confusion of terminology when it comes to private cellular and edge compute. For example, in our interviews, a few enterprises describe traditional on-premises compute with local dedicated compute facilities within an operating site (e.g. a server room) as a flavour of edge compute. We argue that the key difference between traditional on-premises compute and on-premises edge compute is that with the latter, the applications and underlying infrastructure are both more cloud-like. Applications that leverage edge compute also use cloud-like technologies and processes (such as continuous integration and continuous delivery, or CI/CD in short) and the edge infrastructure uses containers or virtual machines and can be remotely managed (rather than being monolithic).

The same applies when it comes to private cellular networking, where the term ‘private network’ is used differently by certain individuals to refer to virtual private networks (VPNs) as opposed to the dedicated local on-premises network we have defined above. In addition, when it comes to private 5G, there is also confusion as to the difference between better in-building coverage of public 5G (i.e. the macro network) versus a private 5G network, for a manufacturing plant for example. This will only be further complicated by the upswing of network slicing, which can sometimes (incorrectly) be marketed as a private network.

Furthermore, for enterprises that are more familiar with the concepts, many are still looking to better understand the business value and outcomes that private LTE/5G and edge compute can bring, and what they can enable for their businesses.

Executive Summary
Introduction
- Evaluating the opportunities with private cellular and edge
- Telcos see private cellular and edge as two peas in a pod…
- …but this is not necessarily the case with enterprises
- Most private cellular or edge trials or PoCs have yet to scale
Edge and private cellular as different tracks
- Enterprises that understand private cellular don’t always understand edge (and vice versa)
- Edge and private cellular are pursued as distinct initiatives
Breaking free from PoC purgatory
- Lack of stakeholder alignment
- Ecosystem inertia
- Unable to build the business case
Addressing different deployment pathways
- Tactical solutions versus strategic transformations
- Find trigger points as key opportunities for scaling
- Readiness of solutions: Speed and ease of deployment
Recommendations for enterprises
Recommendations for telco operators
Recommendations for others
- Application providers, device manufacturers and OEMs
- Regulators

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How video analytics can kickstart the edge opportunity for telcos

Processing video is a key use for edge computing

In our analysis and sizing of the edge market, STL Partners found that processing video will be a strong driver of edge capacity and revenues. This is because a huge quantity of visual data is captured each day through many different processes. The majority of the information captured is straightforward (such as “how busy is this road?”), therefore it is highly inefficient for the whole data stream to be sent to the core of the network. It is much better to process it near to the point of origin and save the costs, energy and time of sending it back and forth. Hence “Video Analytics” is a key use for edge computing.

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The edge market is evolving rapidly

Edge computing is an exciting opportunity. The market is evolving rapidly, and although still fairly nascent today, is expected to scale significantly over the next 2-3 years. STL partners has estimated that the total edge computing addressable market was worth $10bn in 2020, and that this will grow to $534bn in 2030. This is driven by the increasing number of connected devices, and the rising adoption of IoT, Industry 4.0 and digital transformation solutions. While cloud adoption continues to grow in parallel, there are cases where the increasingly stringent connectivity demands of new and advanced use cases cannot be met by cloud or central data centres, or where sending data to the cloud is too costly. Edge answers this problem, and offers an alternative option with lower latency, reduced backhaul and greater reliability. For the many enterprises who are adopting a hybrid and multi-cloud strategy – strategically distributing their data across different clouds and locations – running workloads at the edge is a natural next step.

Developments in the technologies enabling edge computing are also contributing to market growth. For example, the increased agility of virtualised and 5G networks enables the migration of workloads from the cloud to the edge. Compute is also developing, becoming more lightweight, efficient, and powerful. These more capable devices can run workloads and perform operations that were not previously possible at the edge.

Defining different types of edge

Edge computing brings processing capabilities closer to the end user or end-device. The compute infrastructure is therefore more distributed, and typically at smaller sites. This differs from traditional on-premise compute (which is monolithic or based on proprietary hardware) because it utilises the flexibility and openness of cloud native infrastructure, i.e. highly scalable Kubernetes clusters.

The location of the edge may be defined as anywhere between an end device, and a point on the periphery of the core network. We have outlined the key types of edge computing and where they are located in the figure below.

The types of edge computing

It should be noted that although moving compute to the edge can be considered an alternative to cloud, edge computing also complements cloud computing and drives adoption, since data that is processed or filtered at the edge can ultimately be sent to the cloud for longer term storage or collation and analysis.

Telcos must identify which area of the edge market to focus on

For operators looking to move beyond connectivity and offer vertical solutions, edge is an opportunity to differentiate by incorporating their edge capabilities into solutions. If successful, this could result in significant revenue generation, since the applications and platforms layer is where most of the revenue from edge resides. In fact, by 2030, 70% of the addressable revenue for edge will come from the application, with only 9% in the pure connectivity. The remaining 21% represents the value of hardware, edge infrastructure and platforms, integration, and managed services.

Realistically, operators will not have the resource and management bandwidth to develop solutions for several use cases and verticals. They must therefore focus on key customers in one or two segments, understand their particular business needs, and deliver that value in concert with specific partners in their ecosystem. As it relates to MEC, most operators are selecting the key partners for each of the services they offer – broadcast video, immersive AR/VR experiences, crowd analytics, gaming etc.

When selecting the best area to focus on, telcos should weigh up the attractiveness of the market (including the size of the opportunity, how mature the opportunity is, and the need for edge) against their ability to compete.

Value of edge use cases (by size of total addressable market by 2030)

Source: STL Partners – Edge computing market sizing forecast

We assessed the market attractiveness of the top use cases that are expected to drive adoption of edge over the coming years, some of which are shown in the figure above. This revealed that the use cases that represent the largest opportunities in 2030 include edge CDN, cloud gaming, connected car driver assistance and video analytics. Of these, video analytics is the most mature opportunity, therefore represents a highly attractive proposition for CSPs.

Executive Summary
Introduction
- Processing video is a key use for edge computing
- The edge market is evolving rapidly
- Defining different types of edge
- Telcos must identify which area of the edge market to focus on
Video analytics is a large and growing market
- The market for edge-enabled video analytics will be worth $75bn by 2030
Edge computing changes the game and plays to operator strengths
- What is the role of 5G?
Security is the largest growth area and operators have skills and assets in this
- Video analytics for security will increasingly rely on the network edge
There is empirical evidence from early movers that telcos can be successful in this space
- What are telcos doing today?
- Telcos can front end-to-end video analytics solutions
- It is important to maintain openness
- Conquering the video analytics opportunity will open doors for telcos
Conclusion
Index

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Telco edge platforms: Balancing speed vs value

Defining the edge

Edge computing has been hailed as key to help deliver the promises of 5G, enabling transformative use cases and experiences. Significantly for mobile service providers, deriving value from their networks and presence at the edge remains an aspiration for a new source of revenues and a more favourable position in the value chain. There is strong belief that this needs to exceed what was achieved with 3G and 4G, where OTT players built entire businesses through successful services using centralised platforms leveraging fast, ubiquitous internet access. Mobile operators remain hopeful that they can evolve from ‘dumb pipes’ and derive more value from dynamic connectivity services, value added platforms, and partnerships.

The edge means different things to different people, so it is useful to define terminology and clarify the scope of this report. We understand the edge to refer to compute, storage and networking infrastructure, facilities, software, and services which exist physically or architecturally between typically non-telco cloud data centres and end-devices. This report will focus on the ‘telco edge’ for both mobile and fixed line telecoms operators. The term MEC (initially ETSI’s Mobile Edge Computing which evolved to Multi-access Edge Computing) has historically been used for telco edge predominantly with a focus on deployment in the access network, however as we will see its use has somewhat broadened as telcos initially deploy edge computing more centrally.

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The edge continuum spans between end devices and hyperscale cloud

It is common practice to define an edge continuum in a diagram such as below which shows the different edge locations between an end device and the hyperscaler cloud. Typically, the physical distance, the number of network hops, and network latency will increase the further the edge location shifts to the right.

The edge continuum

In considering the telco edge, we will primarily be focussed on the network edge, consisting of data centres logically situated in telco’s access, transport, and core network facilities. The on-premise edge (sometimes referred to enterprise or private edge) may be offered by telcos and others to enterprises but is closely related to private 4G/5G networks and single tenant propositions which are out of scope of this report. STL has written about this in reports such as Private networks: Lessons so far and what next and Combining private 5G and edge computing: The revenue opportunity.

The network edge affords a wide range of choices to deliver edge services from within the network. Network edge also includes neutral host providers that offer facilities for multiple infrastructure providers, which support enterprise applications, as well as radio access networks. These may be offered by traditional telcos, tower infrastructure providers and others.

The regional edge sits outside telco networks at internet exchanges, carrier exchanges, interconnect points, co-location, and data centre facilities. Multiple parties can deploy infrastructure at such locations which are designed as neutral, well-connected locations for third party equipment. For some use cases, these locations are considered as ‘close enough’ or ‘near enough’ edge sites.

Edge computing drivers and benefits vary depending on the use case

While low latency is often cited as the justification for moving application workloads from the cloud to the edge, there are other drivers such as reduced data transit, data sovereignty and improving redundancy. These factors may be just as relevant as low latency, or more so, depending on the specific use case.

Edge computing benefits

Migrating workloads from end-devices to the edge can also bring benefits such as reduced power consumption, allowing smaller form factors at lower costs, and enabling experiences that are simply not possible on existing devices due to heavy computational requirements. Processing in the cloud may have been previously dismissed due to its limitations or constraints. One consumer example would be Instagram or Snapchat real-time video filters with heavy machine learning processing requirements. The processing for these may move to the edge to improve and standardise performance across devices, by not relying on the end-device’s processing power. Partners

However, the public cloud is well established and here to stay, so it is prudent to view the edge as complementary to and an extension of the public cloud, offering characteristics which may be important for specific components of certain use cases.

Executive Summary
- Most telcos do not yet see demand for a fully distributed edge
- The platform is an important piece of the edge, but the verdict is still out on which approach to take
- Telcos need to guarantee multi-cloud and multi-edge orchestration for their customers
- Next steps
Introduction
- Defining the edge
- The state of the edge
Cloud vs edge
- Contrasting public cloud and public edge
- Latency in fixed vs mobile networks
- The rationale for telco edge
Telco edge propositions and use cases
- Internal applications for telcos
- External applications for telcos
- Telco edge propositions based on telco’s capabilities
- Potential use case opportunities for telco edge
Where is the telco edge?
- Edge really means core for now
- Challengers to the telco edge
Building the telco edge platform
- Edge developers want a consistent and seamless experience
- The potential providers of network edge platforms
- Cloud-centric capabilities and business models are key the success of telco edge platforms
Overcoming challenges
- Telco industry challenges
- External challenges
Conclusion: What should telcos do?

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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.

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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Telco plays in live entertainment

Enhancing live entertainment

Live entertainment spans everything from a handful of people enjoying stand-up comedy in a pub to a football match attended by 100,000 fans. Although there are many different forms and formats of live entertainment, they share three inter-related characteristics – immediacy, interactivity and immersion. The performers make things happen and people tend to react, by clapping, shouting, singing or gesticulating at the performers or by interacting with each other. A compelling event will also be immersive in the sense that the spectators will focus entirely on the action.

For telcos, live events present specific challenges and opportunities. Simultaneously providing millions of people with high quality images and audio from live events can soak up large amounts of bandwidth on networks, forcing telcos to invest in additional capacity. Yet, it should be feasible to make a return on that investment: live events are an enormously popular form of entertainment on which people around the world are prepared to spend vast sums of money. This is a market where demand often outstrips supply: tickets for top tier sports events or music concerts can cost US$150 or more.

With the advent of 5G and Wi-Fi 6E, telcos have an opportunity to improve spectators’ enjoyment of live events both within a venue and in remote locations. Indeed, telcos could play a key role in enabling many more people to both participate in and appreciate live entertainment, thereby helping them to enjoy more fulfilling and enriching lives.

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The opportunities to use new technologies to enhance live events

Source: STL Partners

More broadly, telecoms networks and related services have become fundamental to the smooth running of our increasingly digital economy. Our landmark report The Coordination Age: A third age of telecoms explained how reliable and ubiquitous connectivity can enable companies and consumers to use digital technologies to efficiently allocate and source assets and resources. In the case of live entertainment, telcos can help people to make better use of their leisure time – a precious and very finite resource for most individuals.

This report begins by providing an overview of the live entertainment opportunity for telcos, outlining the services they could provide to support both professional and amateur events. It then considers the growing demand for high-definition, 360-degree coverage of live events, before discussing why it is increasingly important to deliver footage in real-time, rather than near real-time. Subsequent sections explore the expanding role of edge computing in facilitating live broadcasts and how augmented reality and virtual reality could be used to create more immersive and interactive experiences.

This report draws on the experiences and actions of AT&T, BT, NTT and Verizon, which are all very active in the coverage of live sports. It also builds on previous STL Partners research including:

Executive Summary
Introduction
Opportunities to enhance live entertainment
- Amateur entertainment – a B2C play
Delivering high-definition/360-degree video
- New broadcast technologies
- Real-time encoding and compression
- Traffic management and net neutrality
Real real-time coverage and stats
- More data and more stats
- Personalised advertising and offers
Edge computing and the in-event experience
- Refereeing automation/support
- In-venue security and safety
- Wi-Fi versus 5G
Augmented reality – blurring the lines
Conclusions
- Tech can enrich people’s experience of live events
- The role of telcos
Index

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Forecasting capacity of network edge computing

Telco edge build has been slower than expected

Telecoms operators have been planning the deployment of edge computing sites for at least the last three years.

Initially, the premise of (mobile) edge computing was to take advantage of the prime real estate telecoms operators had. Mobile operators, in particular, had undergone a process of evolving their network facilities from sites which housed purpose-built networking equipment to data centres as they adopted virtualisation. The consolidation of networking equipment meant there would be spare capacity in these data centres that could easily host applications for enterprises and developers.

That evolution has now been accelerated by the advent of 5G, a mobile generation built on a software-based architecture and IT principles. The result will be a proliferation of edge data centres that will be used for radio access network and core network hardware and software.

However, the reality is that it has taken time for telcos to deploy these sites. There are multiple reasons for this:

Cost: There is a cost to renovate an existing telco site and ensure it meets requirements common for world-class data centres.
Demand: Telcos are hesitant to take on the risk of building out the infrastructure until they are certain of the demand for these data centres.
5G roll-out: Mobile operators have been prioritising their 5G RAN roll-out in the last two years, over the investment in edge data centres.
Partnership decisions: The discussion around who to partner with to build the edge data centres has become more complicated, because of the number of partners vying for the role and the entrance of new partners (e.g. hyperscalers) which has slowed down decision-making

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Early adopters have taken significant strides in their edge strategy in 2021

2020 and 2021 have been seen as inflection points as a number of leading telecoms operators have launched edge sites: e.g. AT&T, Verizon, Cox Communications, SK Telecom and Vodafone. Arguably, this was triggered by AWS announcing partnerships on AWS Wavelength with four telecoms operators in November 2019, with more recently announced (e.g. Telstra in 2021).

Going forward, key questions remain on the trajectory of telco edge build:

How many edge data centres will telcos build and make available for consumer/enterprise applications?
How much capacity of telco edge computing will there be globally?
How much of telco edge computing will be used for distributed core network functions vs. consumer/enterprise applications?
What proportion of telco edge data centre capacity will be taken up by hyperscalers’ platforms?

This report seeks to forecast the capacity at telecoms operators’ edge data centres until 2025 and provide clarity on the nature and location of these sites. In other words, how many sites and servers will be available for running applications and where will these sites be located, both physically and logically in the telecoms operators’ networks.

Before reading this report, we would recommend reading STL Partners’ previous publications on telco edge computing to provide context for some of the key themes addressed, for example:

The report focuses on network edge computing sites

Edge computing comprises of a spectrum of potential location and technologies designed to bring processing power closer to the end-device and source of data, outside of a central data centre or cloud. This report focuses on forecasting capacity at the network edge – i.e. edge computing at edge data centres owned (and usually operated) by telecoms operators.

The initial version of the forecast models capacity at these sites for non-RAN workloads. In other words, processing for enterprise or consumer applications and the distributed core network functions required to support them. Future versions of the forecast will expand to RAN.

Forecast scope in terms of edge locations and workload types

The report covers two out of three scenarios for building the network edge

Table of content

Executive summary
Introduction
There are 3 key factors determining telco edge data centre build out
Logically, most network edge will be in the transport aggregation layer
Geographically, we will see a shift in the concentration of network edge data centres
The limited capacity at network edge DCs will largely be used for edge applications
Most telecoms operators are taking a hybrid approach to building their edge
Conclusions and next steps
Appendix: Methodology

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Edge computing market sizing forecast

Introducing STL Partners’ edge computing market sizing forecast

This report presents the key findings of STL Partners’ new demand forecast model for edge computing services. Its purpose is to:

Assess the demand from 20 use cases which currently rely on edge or will require edge to fully develop;
Identify the total revenue across the value chain: hardware, connectivity, application, edge infrastructure (network and on-premise), and integration and support;
Output a full set of results for over 180 countries over the 2020–2030 period per use case and per vertical.

This report is accompanied by a dashboard which presents a summary of our model output and the associated graphics for the world’s regions and for 20 major markets. The dashboard also presents the full revenue output for the 180+ countries.

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Edge computing addressable revenue will reach US$543 billion by 2030

High-level findings from the model indicate that:

The growth in the number of connected devices, as well as the need for higher levels of automation, operational efficiency and cost reduction, will drive the adoption of edge computing across many use cases and verticals over the next 10 years. This will result in increased spend across the value chain.
The total edge computing addressable market will grow from US$10 billion in 2020 to US$543 billion in 2030 at a CAGR of 49% over the 10-year period.
The total value chain breaks into five main components which are hardware, connectivity, application, integration & support, in addition to the edge infrastructure which includes both on-prem edge and network edge.

Total edge computing addressable revenue

Source: STL Partners

Executive Summary
Methodology
Revenue by value chain component
Revenue by use case
Revenue by vertical
Revenue by region
Appendix

For more information on STL Partners’ edge-related services, please go to our Edge Insights Service page.

The new forecast is intended to complement:

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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?

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

Telstra’s journey in commercialising 5G

Telstra: Maintaining its network leadership

SK Telecom, Verizon and Telstra were among the first in the world to start commercialising 5G networks. SK Telecom and Verizon launched broadband-based propositions in 2018, but it was only in 2019, when 5G smartphones became available, that consumer, business and enterprise customers were really able to experience the networks.

Part 3 of our 3-part series looks at Telstra’s 5G experience and how its propositions have developed from when 5G was launched to the current time. It includes an analysis of both consumer and business offerings promoted on Telstra’s website to identify the revenue streams that 5G is supporting now – as opposed to revenues that new 5G use cases might deliver in future. (We have covered this extensively for a number of verticals, including healthcare, manufacturing, energy, and transport and logistics.)

When its 5G network was launched, Telstra went to market with a 12-month free 5G access period and the intention to charge AUD15 ($12) at the conclusion of the free period. However at the end of the promotion period it opted to keep things simple for consumers, choosing to bundle 5G access with higher tier plans (effectively AUD65 / $50 and above) – and only offer 5G under its main Telstra brand. There were no 5G specific services at launch, however capacity advantages were leveraged to offer zero-rated access to subscription services available with the plan (i.e., subscription services would not consume data). From a customer standpoint the principal and most visible benefit from 5G in the early stages was its noticeably faster speeds.

This report examines the market factors that have enabled and constrained Telstra’s 5G monetisation efforts, as it moves to extend 5G access beyond premium early adopters to a wider audience. It identifies lessons in the commercialisation of 5G for those operators that are on their own 5G journeys and those that have yet to start.

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Telstra 5G performance to date

Given that four of the top five key purchase considerations for Australian customers (across consumer, small business and enterprise segments) are network-related (i.e., coverage, speed, reliability and security), Telstra has made network leadership a point of competitive differentiation. It views its investment in 5G as enabling it to stay ahead of customer network expectations as they evolve.

The operator was Australia’s 5G first-mover and it has been able to maintain its leadership in terms of 5G network coverage to date. This is a key deliverable of its T22 plan for transformation in response to challenging industry dynamics and the impact of the National Broadband Network (NBN) – the government’s broadband upgrade initiative.

In a market release on 21 April 2021, Telstra announced that its 5G network covered close to 66% of the Australian population and that it would attain its target of 75% coverage by the end of June 2021 (it achieved this goal on 28 June 2021). Telstra 5G sites number more than 3,700, across 200+ cities and towns, and 5G coverage extended to over 2,700 suburbs.

Post launch in 2019, early take-up of 5G devices was skewed towards consumer and SME segments, but the launch of Apple’s first 5G device in October 2020 helped promote 5G take-up in the enterprise segment (there has historically been a higher penetration of Apple devices in the Enterprise market).

Early consumers were typically metro customers, which aligned to Telstra’s network rollout strategy (covering more populous/high traffic metro areas first).
Enterprise customers were not among the early adopters of 5G devices.

Net porting to the Telstra network was higher for 5G than for 4G for the first few quarters after launch and Telstra saw strong growth from its installed base (largely the early adopters). In August 2020, Telstra reported 210,000 5G devices connected to its network (before iPhone). The launch of iPhone 12 caused the number of 5G devices to jump to 400K by November 2020 (reported at Telstra’s November investors meeting), with 40K new 5G devices being added per week.

72% of 5G iPhones devices were on plans which included 5G access (i.e. top tier).

At the same meeting in November, Telstra reported that 65% of all new Android device sales were of 5G models (e.g. Oppo, Google, Motorola, Samsung), a factor attributed to getting handsets below the AUD1,000 ($771) threshold. This has helped to increase 5G readiness among its customer base.

By February 2021, the number of 5G devices on the Telstra network was over 1 million (this compares to 8.6 million postpay retail customers reported in December 2020, and 19 million customers overall). The share of devices on 5G plans is not public. Telstra continues to report that it is adding “thousands” of 5G devices to its network weekly.

5G devices connected to Telstra’s network since launch

Source: STL Partners based on Telstra public data

Telstra continues to see an increase in customer take-up of 5G-ready plans (new connections and upgrades). It attributes the increase in postpay service additions over the period to a leadership in 5G (supporting its network leadership perceptions), but also acknowledges that other non-network considerations, such as large data allowances may also be driving the uptake of these plans.

Telstra has reported an increase in the “transacting minimum monthly commitment” (TMMC) versus previous calendar period (PCP) for its postpay handheld customers for six months ending December 2020. TMMC is regarded as a lead indicator of ARPU trends (actual ARPU declined due to lost roaming revenue, new plan accounting which allocates more revenue to handsets, lost out-of-bundle revenue and other factors). Telstra regards some of the increase in TMMC as having been driven by the introduction of the latest model handsets. It noted a high attach rate for 5G inclusive plans – AUD65 and above plans – with iPhone 12 devices and the latest Samsung handsets that were introduced during the period (i.e., customers want 5G-ready plans with these new 5G handsets, not 5G access alone).

AUD ($) increase in TMMC on PCP for postpay handheld customers

Source: Telstra

Whilst the initial most obvious benefits of 5G relate to speed, Telstra assumes a broader perspective of 5G’s success metrics, including a comparison of overall NPS which has been consistently higher for customers on 5G plans than for those on 4G plans. There could be a number of reasons for this, aside from better network performance, e.g.:

Positive associations with having something “new”;
A positive effect as a result of iPhone ownership (though Telstra has noticed that the positive trend started before the iPhone launch);
Post-purchase rationalisation;
Richer device capabilities.

Telstra continues to monitor this trend to determine if it will be maintained.

Executive Summary
Introduction
Performance indicators to date
Details of launch
Consumer propositions
- At launch…
- …And now
- Consumer monetisation summary
Business propositions
- At launch…
- …And now
- Business monetisation summary
Analysis of 5G market developments
What next?
Conclusions
Index
Appendix 1

This report builds on earlier STL Partners research, including:

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Telecoms priorities: Ready for the crunch?

The goal of this research is to understand how telecoms operators’ investment priorities and investments are likely to change as the COVID-19 crisis recedes. To do this, we collected 144 survey responses from participants in telecoms operators, telecoms vendors, and analysts and consultants and other groups. All responses are treated in strict personal and company confidence. Take the survey here.

This research builds on our previous content on the impact of the pandemic to the telecoms industry: COVID-19: Now, next and after (March 2020), COVID-19: Impact on telco priorities (May 2020), based on a survey undertaken in April and early May 2020 and Recovering from COVID: 5G to stimulate growth and drive productivity (August 2020). STL Partners has also hosted three webinar on the topic (March to July 2020).

This deck summarises the findings of our industry research on telecoms priorities at the start of 2021.

We explored the research in our webinar, State of the Industry: 2021 Priorities (click on the link to view the recording).

Background to the telecoms priorities survey – January 2021

The respondents were fairly evenly split between telcos, vendors, and ‘others’ (mainly analysts and consultants). This sample contained a higher proportion of European and American respondents than industry average, so is not fully globally representative. The split of company types and geography was broadly similar to the May 2020 survey, with the exception of the MENA region, where there were less than half the prior respondents – a total of 7. However those respondents were senior and well known to STL.

Who took the survey?

Source: STL telecoms priorities survey, 144 respondents, 31st January 2021

48% of respondents were C-Level/VP/SVP/Director level. Functionally, most respondents work in senior HQ and operational management areas. Compared to May 2020, there were proportionally slightly more senior respondents, and slightly less in product and strategy roles.

What are their roles?

Source: STL telecoms priorities survey, 144 respondents, 31st January 2021

How respondents perceive priorities, as the COVID threat recedes

There were increases in respondent confidence in almost every category we surveyed from May 2020 to Jan 2021.

Telecoms automation and agility remain top priorities across the industry – and transformation has moved up the agenda.
Appetite for 5G investments increased the most of all areas surveyed in the last 8 months.
The ‘consumerisation’ of enterprise continues, although security and work from home (WFH) services have overtaken conferencing and VPNs in priority.
Healthcare remains the most accelerated vertical / application opportunity of all those impacted in the current crisis.
The priority of consumer services has significantly increased yet confidence in making any additional money in the sector is low.
Leadership and transformation: COVID 19 has empowered an industry-wide belief that change is possible.
Transformation and innovation are high priorities, and appetite for sustainability and recruitment has returned, but there are doubts about some telco leaders’ commitment and ability to grasp and invest in new opportunities.

STL Partners assesses the telecoms industry to be at a crunch point: COVID has injected further pace to the rapid evolution of the world economy. Telcos that have been focused on responding to immediate pandemic-induced challenges, will emerge from the crisis faced with an urgency to respond to this evolution – key choices that telcos might have had 5-10 years to ponder are being crunched into the next 0-3 years.

Our findings suggest that most telcos are only partly ready for this disruptive opportunity.

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Email address:

Notes on interpreting the research findings

The way research respondents perceive any given question is generally dependent on their current situation and knowledge. To get relevant answers, we asked all respondents if they were interested or involved in specific areas of interest (e.g. ‘consumer services’), and to not answer questions they couldn’t (e.g. for confidentiality reasons) or simply didn’t know or have a clear opinion.
We saw no evidence that respondents were ‘gaming’ the results to be favourable to their interests.
Results need to be seen in the context that telcos themselves vary widely in size, profitability and market outlook. For example, for some, 5G seems like a valid investment, whereas for others the conditions are currently much less promising. COVID-19 has clearly had some impact on these dynamics, and our analysis attempts to reflect this impact on the overall balance of opinions as well as some of the specific situations to bring greater nuance.
In December 2020 / January 2021, the worldwide impact of COVID-19 is increasingly well understood and less of a shock than was the case in May / June 2020. Vaccines are beginning to be rolled out but it is an early stage in the process, and new variants of COVID-19 have evolved in the UK, South Africa and Brazil (and possibly elsewhere). There are geo-political wrangles on vaccine distribution, and varying views on effectiveness and the most appropriate responses. Nonetheless, respondents appear overall more optimistic, although there is still considerable uncertainty.
We’ve interpreted the results as best we can given our knowledge of the respondents and what they told us, and added in our own insights where relevant.
Inevitably, this is a subjective exercise, albeit based on 144 industry respondents’ views.
Nonetheless, we hope that it brings you additional insights to the many that you already possess through your own experiences and access to data.
Finally, things continue to change fast. We will continue to track them.

Executive summary: Opportunities are in overdrive, but can telcos catch them?
High-level findings
Research background
Technology impacts: Automation, cloud and edge come of age
Network impacts: 5G is back
Enterprise sector impacts: Healthcare still leads
Consumer sector impacts: Mojo aplenty, money – not so much
Leadership impacts: good talking, but enough walking?

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Telco A3: Skilling up for the long term

Telcos must master automation, analytics and AI (A3) skills to remain competitive

A3 will permeate all aspects of telcos’ and their customers’ operations, improving efficiency, customer experience, and the speed of innovation. Therefore, whether a telecoms operator is focused on its core connectivity business, or seeking to build new value beyond connectivity, developing widespread understanding of value of A3 and disseminating fundamental automation and AI skills across the organisation should be a core strategic goal. Our surveys on industry priorities suggest that operators recognise this need, and automation and AI are correspondingly rising up the agenda.

Expected technology priority change by organisation type, May 2020

*Updated January 2021 survey results will be published soon. Source: STL Partners survey, 222 respondents.

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Key findings on operators’ A3 strategies

Based on deep dive interviews with 8 telcos, as well as insights from 8 more telcos gathered from previous research programmes.

Less advanced telcos are creating a set of basic structures and procedures, as well as beginning to develop a single view of the customer
Having a single version of the truth appears to be an ongoing issue for all – alongside continued work on data quality
As full end-to-end automation is not a realistic goal for the next few years, interviewees were seeking to prioritise the right journeys to be automated in the short term
Reskilling and education of staff was an area of importance for many but not all
Just one company had less ambitious data-related aims due to the specialist nature of their services and smaller size of the company – saying that they worked with data on an as-needed basis and had no plans to develop dedicated data science headcount

Preparing for the future: There are four areas where A3 will impact telcos’ businesses

Source: Charlotte Patrick Consult, STL Partners

In this report we outline the skills and capabilities telcos will need in order to navigate these changes. We break out these skills into four layers:

The basic skillset: What operators need to remain competitive over the short term
The next 5 years: The skills virtually all telcos will need to build or acquire to remain competitive in the medium term (exceptions include small or specialist telcos, or those in less competitive markets)
The next 10 years: The skills and organisational changes telcos will need to achieve within a 10 year timeframe to remain competitive in the long term
Beyond connectivity (5–10 year horizon): This includes A3 skills that telcos will need to be successful strategic partners for customers and suppliers, and to thrive in ecosystem business models. These will be essential for telcos seeking to play a coordination role in IoT, edge, or industry ecosystems.

Executive Summary
Telcos’ current strategic direction
- Deep dive into 8 operator strategies
- Overview of 8 more operator strategies
How A3 technologies are evolving
- Deep dive into 40 A3 applications that will impact telcos’ businesses
- Internal capabilities
- Customer requirements
- Technology changes
- Organisational change
A timeline of telco A3 skills evolution
- The basic skillset
- The next 5 years
- The next 10 years
- Beyond connectivity

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Microsoft, Affirmed and Metaswitch: What does it mean for telecoms?

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’s five partnership and service models

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.

Executive Summary
- Microsoft wants to be a win-win partner
- What should telcos and others do?
- Next steps
Introduction
- 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
Index

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Growing B2B revenues from edge: Five new telco services

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Edge computing has sparked significant interest from telcos

Edge computing brings cloud capabilities such as data processing and storage closer to the end user, device, or the source of data. There are two main opportunity areas for telcos in edge computing. Firstly, telcos have an opportunity to provide edge computing via edge data centres at sites on the telecoms network – network edge, sometimes referred to as multi-access edge computing. Secondly, telcos can offer edge-enabled services through compute platforms at the customer premises – on-premise edge.

Although there is an opportunity for telcos to offer new services and an enhanced customer experience to their consumer customer base, much of the edge computing opportunity for telcos is in the B2B segment. We have covered the general strategy operators are taking for edge computing in our previous report Telco edge computing: What’s the operator strategy? and through insights on our Edge Hub. Within enterprise, edge offers a chance for operators to move beyond offering connectivity services and extend into the platform and application space.

However, the market is still young; enterprises are still at an early stage of understanding the potential benefits of edge computing. There is limited availability of network edges; telcos are still deploying sites and few have begun to offer mechanisms to access the edge compute infrastructure within them. As a result, developers are only just starting to build applications to leverage this new infrastructure.

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Telcos are still grappling with defining the opportunity. Since adoption is so nascent, many feel that they are not able to prove the commercial case to unlock significant investment. Some operators are pushing ahead by building out edge infrastructure, securing partnerships and launching edge computing services. Nonetheless, even these operators are keeping an open mind to edge and waiting to see what unfolds as the market matures. What is clear is that, with the hyperscalers and others moving into the edge, telcos are increasingly keen to capitalise on the edge opportunity and solidify their position in the market before it’s too late.The sweet spot opportunity for edge is highly dependent on telcos’ starting points: some have existing capabilities within B2B networking and cloud, partnerships, and strong customer relationships. But for other telcos, the B2B business is at a very early stage. Meanwhile, edge infrastructure build differs across telcos, with some choosing to partner with hyperscalers to create the hardware and software stack within edge data centres while others are opting to build their own stack.

It is therefore critical for telcos to:

Assess whether they can leverage existing B2Bservices, customers and partners versus where they need to invest to fill the gaps
Understand which factors may affect how successful they are in offering new edgeservices
Prioritise which servicesthey could offer to B2B customers

In this report, we focus on answering the following questions:

Which B2B services can edge computing add value to? And how ready are telcos to take new edge services to market?

In order to better understand how operators are thinking about edge services and what they are looking to offer today, we interviewed eight technology and strategy leaders working in operators primarily across Europe.

To ensure an open and candid dialogue, we have anonymised their contributions. We would like to take the opportunity to thank those who participated in this research. A summary of the interviewee profiles is provided in the Appendix.

Telcos’ B2B businesses today

As consumer revenues come under increasing pressure, operators are looking to their B2B businesses to provide a new source of revenue growth. The maturity of their B2B businesses today varies from those who have a limited offering focussed primarily on phones, SIMs and basic connectivity (particularly mobile-only telcos, e.g. Three UK), to those who are providing full vertical applications or taking on the role of systems integrator (often incumbents or telcos with fixed networks, e.g. DTAG, Vodafone). Many telcos are looking for opportunities to take on more of the latter role, by expanding their B2B offerings and increasing their foothold in the value chain e.g. by offering managed services. Particularly with the arrival of 5G, they see greater potential to grow revenues through B2B services compared with B2C.

Maturity levels of telcos’ B2B business

Table of content

Executive Summary
Introduction
Strategic principles for B2B telco edge
- Telcos’ B2B businesses today
- Three telco strategies for B2B edge
- On-premise edge and network edge are separate opportunities
- Telcos are open to partnering with the hyperscalers for edge
Five types of B2B edge services
- Edge-to-cloud networking
- Private edge infrastructure
- Network edge platforms
- Multi-edge and cloud orchestration
- Vertical solutions
Evaluating the opportunity: How should telcos prioritise?
- It’s not just about technology
- However, significant value creation does not come easy
- Telcos should consider new business models to ensure success
Next steps for telcos in building B2B edge services
- Prioritise services to monetise edge
- Evaluate the role of partners
- Work closely with customers given that edge is still nascent
Appendix
- Interviewee overview
Index

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AI is starting to pay: Time to scale adoption

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AI adoption yields positive results

Over the last five years, telcos have made measurable progress in AI adoption and it is starting to pay off. When compared to all industries, telcos have become adept at handling large data sets and implementing automation. Over the last several years the telecoms industry has gone from not knowing where or how to implement AI, to having developed and implemented hundreds of AI and automation applications for network operations, fraud prevention, customer channel management, and sales and marketing. We have discussed these use cases and operator strategies and opportunities in detail in previous reports.

For the more advanced telcos, the challenge is no longer setting up data management platforms and systems and identifying promising use cases for AI and automation, but overcoming the organisational and cultural barriers to becoming truly data-centric in mindset, processes and operations. A significant part of this challenge includes disseminating AI adoption and expertise of these technologies and associated skills to the wider organisation, beyond a centralised AI team.The benchmark for success here is not other telcos, or companies in other industries with large legacy and physical assets, but digital- and cloud-native companies that have been established with a data-centric mindset and practices from the start. This includes global technology companies like Microsoft, Google and Amazon, who increasingly see telecoms operators as customers, or perhaps even competitors one day, as well as greenfield players such as Rakuten, Jio and DISH, which as well as more modern networks have fewer ingrained legacy processes and cultural practices to overcome.

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Telecoms has a high AI adoption rate compared with other industries

Source: McKinsey

In this report, we assess several telcos’ approach to AI and the results they have achieved so far, and draw some lessons on what kind of strategy and ambition leads to better results. In the second section of the report, we explore in more detail the concrete steps telcos can take to help accelerate and scale the use of AI and automation across the organisation, in the hopes of becoming more data-driven businesses.

While not all telcos have an ambition to drive new revenue growth through development of their own IP in AI, to form the basis of new enterprise or consumer services, all operators will need AI to permeate their internal processes to compete effectively in the long term. Therefore, whatever the level ambition, disseminating fundamental AI and data skills across the organisation is crucial to long term success. STL Partners believes that the sooner telcos can master these skills, the higher their chances of successfully applying them to drive innovation both in core connectivity and new services higher up the value chain.

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SK Telecom: Lessons in 5G, AI, and adjacent market growth

SK Telecom’s strategy

SK Telecom is the largest mobile operator in South Korea with a 42% share of the mobile market and is also a major fixed broadband operator. It’s growth strategy is focused on 5G, AI and a small number of related business areas where it sees the potential for revenue to replace that lost from its core mobile business.

By developing applications based on 5G and AI it hopes to create additional revenue streams both for its mobile business and for new areas, as it has done in smart home and is starting to do for a variety of smart business applications. In 5G it is placing an emphasis on indoor coverage and edge computing as basis for vertical industry applications. Its AI business is centred around NUGU, a smart speaker and a platform for business applications.

Its other main areas of business focus are media, security, ecommerce and mobility, but it is also active in other fields including healthcare and gaming.

The company takes an active role internationally in standards organisations and commercially, both in its own right and through many partnerships with other industry players.

It is a subsidiary of SK Group, one of the largest chaebols in Korea, which has interests in energy and oil. Chaebols are large family-controlled conglomerates which display a high level and concentration of management power and control. The ownership structures of chaebols are often complex owing to the many crossholdings between companies owned by chaebols and by family members. SK Telecom uses its connections within SK Group to set up ‘friendly user’ trials of new services, such as edge and AI

While the largest part of the business remains in mobile telecoms, SK Telecom also owns a number of subsidiaries, mostly active in its main business areas, for example:

SK Broadband which provides fixed broadband (ADSL and wireless), IPTV and mobile OTT services
ADT Caps, a securitybusiness
IDQ, which specialises in quantum cryptography (security)
11st, an open market platform for ecommerce
SK Hynixwhich manufactures memory semiconductors

Few of the subsidiaries are owned outright by SKT; it believes the presence of other shareholders can provide a useful source of further investment and, in some cases, expertise.

SKT was originally the mobile arm of KT, the national operator. It was privatised soon after establishing a cellular mobile network and subsequently acquired by SK Group, a major chaebol with interests in energy and oil, which now has a 27% shareholding. The government pension service owns a 11% share in SKT, Citibank 10%, and 9% is held by SKT itself. The chairman of SK Group has a personal holding in SK Telecom.

Following this introduction, the report comprises three main sections:

SK Telecom’s business strategy: range of activities, services, promotions, alliances, joint ventures, investments, which covers:
- Mobile 5G, Edge and vertical industry applications, 6G
- AIand applications, including NUGU and Smart Homes
- New strategic business areas, comprising Media, Security, eCommerce, and other areas such as mobility
Business performance
Industrial and national context.

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Overview of SKT’s activities

Network coverage

SK Telecom has been one of the earliest and most active telcos to deploy a 5G network. It initially created 70 5G clusters in key commercial districts and densely populated areas to ensure a level of coverage suitable for augmented reality (AR) and virtual reality (VR) and plans to increase the number to 240 in 2020. It has paid particular attention to mobile (or multi-access) edge computing (MEC) applications for different vertical industry sectors and plans to build 5G MEC centres in 12 different locations across Korea. For its nationwide 5G Edge cloud service it is working with AWS and Microsoft.

In recognition of the constraints imposed by the spectrum used by 5G, it is also working on ensuring good indoor 5G coverage in some 2,000 buildings, including airports, department stores and large shopping malls as well as small-to-medium-sized buildings using distributed antenna systems (DAS) or its in-house developed indoor 5G repeaters. It also is working with Deutsche Telekom on trials of the repeaters in Germany. In addition, it has already initiated activities in 6G, an indication of the seriousness with which it is addressing the mobile market.

NUGU, the AI platform

It launched its own AI driven smart speaker, NUGU in 2016/7, which SKT is using to support consumer applications such as Smart Home and IPTV. There are now eight versions of NUGU for consumers and it also serves as a platform for other applications. More recently it has developed several NUGU/AI applications for businesses and civil authorities in conjunction with 5G deployments. It also has an AI based network management system named Tango.

Although NUGU initially performed well in the market, it seems likely that the subsequent launch of smart speakers by major global players such as Amazon and Google has had a strong negative impact on the product’s recent growth. The absence of published data supports this view, since the company often only reports good news, unless required by law. SK Telecom has responded by developing variants of NUGU for children and other specialist markets and making use of the NUGU AI platform for a variety of smart applications. In the absence of published information, it is not possible to form a view on the success of the NUGU variants, although the intent appears to be to attract young users and build on their brand loyalty.

It has offered smart home products and services since 2015/6. Its smart home portfolio has continually developed in conjunction with an increasing range of partners and is widely recognised as one of the two most comprehensive offerings globally. The other being Deutsche Telekom’s Qivicon. The service appears to be most successful in penetrating the new build market through the property developers.

NUGU is also an AI platform, which is used to support business applications. SK Telecom has also supported the SK Group by providing new AI/5G solutions and opening APIs to other subsidiaries including SK Hynix. Within the SK Group, SK Planet, a subsidiary of SK Telecom, is active in internet platform development and offers development of applications based on NUGU as a service.

Smart solutions for enterprises

SKT continues to experiment with and trial new applications which build on its 5G and AI applications for individuals (B2C), businesses and the public sector. During 2019 it established B2B applications, making use of 5G, on-prem edge computing, and AI, including:

Smart factory(real time process control and quality control)
Smart distribution and robot control
Smart office (security/access control, virtual docking, AR/VRconferencing)
Smart hospital (NUGUfor voice command for patients, AR-based indoor navigation, facial recognition technology for medical workers to improve security, and investigating possible use of quantum cryptography in hospital network)
Smart cities; e.g. an intelligent transportation system in Seoul, with links to vehicles via 5Gor SK Telecom’s T-Map navigation service for non-5G users.

It is too early to judge whether these B2B smart applications are a success, and we will continue to monitor progress.

Acquisition strategy

SK Telecom has been growing these new business areas over the past few years, both organically and by acquisition. Its entry into the security business has been entirely by acquisition, where it has bought new revenue to compensate for that lost in the core mobile business. It is too early to assess what the ongoing impact and success of these businesses will be as part of SK Telecom.

Acquisitions in general have a mixed record of success. SK Telecom’s usual approach of acquiring a controlling interest and investing in its acquisitions, but keeping them as separate businesses, is one which often, together with the right management approach from the parent, causes the least disruption to the acquired business and therefore increases the likelihood of longer-term success. It also allows for investment from other sources, reducing the cost and risk to SK Telecom as the acquiring company. Yet as a counterpoint to this, M&A in this style doesn’t help change practices in the rest of the business.

However, it has also shown willingness to change its position as and when appropriate, either by sale, or by a change in investment strategy. For example, through its subsidiary SK Planet, it acquired Shopkick, a shopping loyalty rewards business in 2014, but sold it in 2019, for the price it paid for it. It took a different approach to its activity in quantum technologies, originally set up in-house in 2011, which it rolled into IDQ following its acquisition in 2018.

SKT has also recently entered into partnerships and agreements concerning the following areas of business:

VRand gaming (e.g. cloud gaming partnership with Microsoft)
Business and private networking
Health (e.g. with care organisation Ariacare Korea)

Executive Summary
Introduction and overview
- Overview of SKT’s activities
Business strategy and structure
- Strategy and lessons
- 5G deployment
- Vertical industry applications
- AI
- SK Telecom ‘New Business’ and other areas
Business performance
- Financial results
- Competitive environment
Industry and national context
- International context

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Growing B2B2X: Taking telcos beyond connectivity and 5G

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The telecoms industry is looking to revive growth

Telecoms operators have enjoyed 30 years of strong growth in all major markets. However, the core telecoms industry is showing signs of slowing. Connectivity revenue growth is declining and according to our research, annual growth in mobile operator revenues pre-COVID were converging to 1% across Asia Pacific, North America, and Western Europe. To help reverse this trend, telecoms operators’ have been investing in upgrading networks (fibre, 4G, 5G), enabling them to offer ever-increasing data speeds/plans to gain more customers and at least sustain ARPUs. However, this has resulted in the increasing commoditisation of connectivity as competitors also upgrade their networks. The costs to upgrade networks coupled with reducing margins from commoditisation have made it difficult for operators to invest in new revenue streams beyond core connectivity.

While connectivity remains an essential component in consumer and enterprises’ technology mix, on its own, it no longer solves our most pressing challenges. When the telecoms industry was first founded, over 150 years ago, operators were set up to solve the main challenge of the day, which was overcoming time and distance between people. Starting in the 1990s, alongside the creation of the internet and development of more powerful data networks, today’s global internet players set out to solve the next big challenge – affordable access to information and entertainment. Today, our biggest challenge is the need to make more efficient use of our resources, whether that’s time, assets, knowledge, raw material, etc. Achieving this requires not only connectivity and information, but also a high level of coordination across multiple organisations and systems to get it to the right place, at the right time. We therefore call this the Coordination Age.

Figure 1: New challenges for telecoms in the Coordination Age

Source: STL Partners

In the Coordination Age, ‘things’ – machines, products, buildings, grids, processes – are increasingly connecting with each other as IoT and cloud-based applications become ubiquitous. This is creating an exponential increase in the volume of data available to drive development of advanced analytics and artificial intelligence, which combined with automation can improve productivity and resource efficiency. There are major socioeconomic challenges that society is facing that require better matching of supply and demand, which not only needs real-time communications and information exchange, but also insights and action.

In the Coordination Age, there is unlikely to be a single dominant coordinator for most ecosystems. While telecoms operators may not have all the capabilities and assets to play an important coordination role, especially compared to the Internet giants, they do have the advantage of being regulated and trusted in their local markets. This presents new opportunities for telecom operators in industries with stronger national boundaries. As such, there is a role for telcos to play in other parts of the value chain which will ultimately enable them to unlock new revenue growth (e.g. TELUS Health and Elisa Smart Factory).

New purpose, new role

The Coordination Age has added increased complexity and new B2B2X business model challenges for operators. They are no longer the monopolies of the past, but one of many important players in an increasingly ecosystem-based economy. This requires telcos to take a different approach: one with new purpose, culture, and ways of working. To move beyond purely connecting people and devices to enabling coordination, telcos will need a fundamental shift in vision. Management teams will need to embrace a new corporate purpose aligned with the outcomes their customers are looking for (i.e. greater resource efficiency), and drive this throughout their organisations.

Historically, operators have served all customers – consumers, small and medium-sized enterprises (SMEs), larger enterprises from all verticals and other operators – with a set of horizontal services (voice, messaging, connectivity). If operators want to move beyond these services, then they will need to develop deep sector expertise. Indeed, telcos are increasingly seeking to play higher up the value chain and leveraging their core assets and capabilities provides an opportunity to do so.

However, in order to drive new revenues beyond connectivity and add value in other parts of the solution stack, telcos need to be able to select their battles carefully because they do not have the scale, expertise or resources to do it all.

Figure 2: Potential telco roles beyond traditional connectivity

Source: STL Partners

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Clearer on the vision, unclear on the execution

Many telcos have a relatively clear idea of where they want to drive new streams of revenue beyond traditional connectivity services. However, they face various technical, strategic and organisational challenges that have inhibited this vision from reaching fruition and have unanswered questions about how they can overcome these. This lack of clarity is further evident by the fact that some telcos have yet to set explicit revenue targets or KPIs for non-connectivity revenue, and those that have set clear quantifiable objectives struggle to define their execution plan or go-to-market strategy. Even operators that have been most successful in building new revenue streams, such as TELUS and Elisa, do not share targets or revenues for their new businesses publicly. This is likely to protect them from short-term demands of most telecoms shareholders, and because, even when profitable, they may not yet be seen as valuable enough to move the needle.

This report focuses not just on telco ambitions in driving B2B2X revenues beyond core connectivity and the different roles they want to play in the value chain, but more importantly on what strategies telcos are adopting to fulfil their ambitions. Within this research, we explore what is required to succeed from both a technological and organisational standpoint. Our findings are based on an interview programme with over 23 operators globally, conducted from June to August 2020. Our participant group spans across different operator types, geographies, and types of roles within the organisation, ensuring we gain insight into a range of unique perspectives.

In this report, we define B2B2X as a business model which supports the dynamic creation and delivery of new services by multiple parties (the Bs) for any type of end-customer (the X), whether they be enterprises or consumers. The complexity of the value chains within B2B2X models requires more openness and flexibility from party providers, given that any provider could be the first or second ‘B’ in the B2B2X acronym. This research is primarily focused on B2B2X strategies for serving enterprise customers.

In essence, our research is focused on answering the following key question: how can operators grow their B2B2X revenues when traditional core connectivity is in decline?

Executive Summary
Introduction
- The telecoms industry is looking to revive growth
- New purpose, new role
- Clearer on the vision, unclear on the execution
Beyond connectivity, but where to?
- “Selling the service sandwich”
- Horizontal play: Being the best application enabler
- The vertical-specific digital services provider
- There is no “best” approach: Some will work better for different operators in different situations
- 5G is a trigger but not the only one
Accelerating the shift towards partnerships and ecosystems
- Some operator ‘ecosystems’ look more like partnerships
- Not all telcos define ‘ecosystems’ the same way
- Most telcos focusing on ecosystems want to orchestrate and influence the proposition
- Many see ecosystems as a key potential route but ecosystems come with new requirements
The market is ripe for telco ecosystems
- The interest in network intelligence is not new but this time is different
- Telcos can provide unique value by making their networks more accessible
- But so far, telcos have not fully embraced this vision yet
Conclusions and recommendations

The Metaverse offers opportunities beyond connectivity for telcos

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The renaming of Facebook sparked a surge of interest in the Metaverse

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Related Research

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Evaluating the opportunities with private cellular and edge

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Telcos see private cellular and edge as two peas in a pod…

Figure 1: Private cellular combines the benefits of fixed and wireless in a tailored way

Figure 2: Edge computing combines local and cloud compute benefits to end-users

…but this is not necessarily the case with enterprises

Table of Contents

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Processing video is a key use for edge computing

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The edge market is evolving rapidly

Defining different types of edge

The types of edge computing

Telcos must identify which area of the edge market to focus on

Value of edge use cases (by size of total addressable market by 2030)

Table of Contents

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Defining the edge

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The edge continuum spans between end devices and hyperscale cloud

The edge continuum

Edge computing drivers and benefits vary depending on the use case

Edge computing benefits

Table of Contents

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VNF deployments on the hyperscale cloud are just beginning

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

Five business models for telco-hyperscaler partnerships

Major telcos deploying VNFs in the public cloud

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

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Related Research

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Enhancing live entertainment

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The opportunities to use new technologies to enhance live events

Contents

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Telco edge build has been slower than expected

Download the additional file to view the accompanying spreadsheet

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Early adopters have taken significant strides in their edge strategy in 2021

The report focuses on network edge computing sites

Forecast scope in terms of edge locations and workload types

The report covers two out of three scenarios for building the network edge

Table of content

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Introducing STL Partners’ edge computing market sizing forecast

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Edge computing addressable revenue will reach US$543 billion by 2030

Total edge computing addressable revenue

Table of contents

For more information on STL Partners’ edge-related services, please go to our Edge Insights Service page.

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Why telcos need to capture the edge opportunity now

Figure 1: Interviewee profiles across telcos and enterprises

Table of Contents

Further reading

Telstra: Maintaining its network leadership

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Telstra 5G performance to date

5G devices connected to Telstra’s network since launch

AUD ($) increase in TMMC on PCP for postpay handheld customers

Contents

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Background to the telecoms priorities survey – January 2021

Who took the survey?

What are their roles?

How respondents perceive priorities, as the COVID threat recedes

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Notes on interpreting the research findings

Table of contents

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