Tag: Hyperscalers

Network-as-a-service: APIs, AI and the open cloud

NaaS is a cloud-native opportunity

Network virtualisation and disaggregation are creating opportunities that are broadly categorised as Network as a Service (NaaS). This concept has been around since the early 2010s, when the project to virtualise telecoms networks began. In other words, it is an idea that is native to telco cloud and a natural by-product of virtualising network functions. Some of the goals of network functions virtualisation implied NaaS. These were to enable networking capabilities to be:

  • Spun up and activated whenever required to meet user demand
  • Scaled up and out dynamically to provide greater capacity, bandwidth and reliability, along with lower latencies, whenever and wherever required
  • Programmable and instructible by operators, third parties such as application developers, and customers, including via APIs(see below)
  • Defined and managed centrally, through software, independently of the underlying network technologies and domains (for example, through software-defined networking [SDN], typically in SD-WANplatforms)
  • Made able – in the 5G era – to support multiple, parallel virtual networks running over the same physical core and access networks, for example in network slicing

The role of network slicing relates to a distinction between the NaaS discussion at the present time and previous iterations of the idea in the earlier phases of the telco industry’s cloud evolution. Previously, NaaS referred to services that depended either on the enhanced scalability enabled by virtualised network functions or on SDN control over traffic flows. Earlier NaaS services included:

  • On-demand activation, or scaling up or down, of dedicated Ethernet links or broadband access
  • Flexible, rapid deployment of enterprise network services using Virtualised Network Functions (VNFs) hosted on vendor-neutral customer premises equipment (uCPE)
  • SD-WAN, involving on-demand creation and centralised, SDN-based management of WAN services, via a software overlay, across multiple physical network types and domains

Current thinking around NaaS is directed towards the opportunities resulting from enabling the largely virtualised functions of the telco network to be programmed and customised around the requirements of applications of different types, typically via APIs. This is an opportunity linked to other technology trends such as edge computing, IoT and the emergence of cloud-native networks and functions. Here, it is not just the standard attributes of rigid VNFs that can be scaled or controlled via the service, but the fundamental building blocks of the network – from core to access – that can be re-programmed, modified or swapped out altogether. The ultimate logic of this is to allow an almost indefinite number of virtual networks to be created and run across a single cloud-managed, physical network.

Many of the commercial and technological challenges and opportunities from network APIs were discussed in our recent report, Network APIs: Driving new revenue streams for telcos. Our research shows that APIs represent a substantial opportunity for telcos, with the revenue opportunity created by the top 11 mobile network APIs forecast to reach over $22 billion by 2028 (see graphic below).

Mobile network API revenue opportunity, 2022-2028, worldwide

Mobile-network-API-revenue-opportunity-2022-2028-worldwide-stl-partners

Source: STL Partners, TELUS

These APIs comprise network information APIs providing real-time information about the network (such as performance, hyper-precise location and device status) and network configuration APIs, which instruct the network (for example, quality-of-service on-demand, slice configuration and device onboarding).

NaaS is also an opportunity for non-telcos

Our forecast is, however, beset by a great deal of uncertainty. Firstly, this is because the business model for these sorts of network API is still highly unclear. For example, how much application developers will actually be prepared to pay for network access via this route. This depends on operators being able to establish a clear value proposition for their APIs, i.e. that they give access to capabilities that clearly enhance the functionality of applications or indeed are essential to their performance. And secondly, operators would need to assert themselves as the primary, even exclusive, providers of access to these capabilities.

Table of contents

  • Executive Summary
    • NaaS is a major opportunity for telcos and non-telcos alike
    • NaaS 2.0 will be delivered across an open telco cloud
    • Recommendation: NaaS 2.0 is a long-term but fast-evolving opportunity and telcos need to pick a strategy
    • Three NaaS business models: Co-creator, Distributor and Aggregator
  • NaaS is a cloud-native opportunity
  • NaaS is also an opportunity for non-telcos
  • AI-driven automation and cloud-native software could bypass telco APIs
    • Cloud-native and AI are made for each other
    • AI-based NaaS will enable a new breed of automation-enabling, edge compute applications
    • NaaS 2.0 threatens a “Wild West” of networking
    • NaaS will drive a restructuring of the telecoms industry as a whole: How should telcos play?
  • Three NaaS 2.0 business models for the telco: Co-creator, distributor and aggregator
    • Business model 1: Enabler and co-creator of NaaS 2.0 services
    • Business model 2: Physical distributor of NaaS 2.0 services
    • Business model 3: NaaS aggregator
  • Conclusion: NaaS is a significant opportunity — but not just for telcos

Related Research

Network APIs: Driving new revenue streams for telcos

Network APIs promise new revenues for telcos

Since 2020 there has been a resurgent interest in applications interfacing with the network they run over. The exponential increase in the number of connected devices and complex traffic, particularly video, is exerting pressure on network resources. Applications must become more aware of network and edge compute resource availability to meet increasingly stringent customer requirements as well as energy efficiency targets – for example, by prioritising critical applications. MEC allows data to be collected and processed closer to the customer (more information on edge computing is available on our Edge hub).

STL Partners forecasts the revenue opportunity created by mobile network APIs to reach over $20 billion by 2028 (the full version of this report provides a breakdown of the opportunity for the top 11 network APIs), as well as enabling powerful new applications that leverage programmable, cloud-native networks.

Increased network programmability will enable developers to build applications that require guaranteed connection speed and bandwidth, giving users/providers the option to pay a premium for network resource when and where they need it. The network APIs fuelling this market fall into two broad categories:

  • Network information APIs: Basic network APIs that provide real-time information about the network will reach extremely high volumes over the next decade. These will gradually be consolidated into the core network offering as a hygiene factor for all operators. Examples include network performance (information only), hyper-precise location, real-time device status, etc.
  • Network configuration APIs: APIs that instruct the network will not reach the same volume of usage, instead offering a premium service to a smaller pool of users wanting to define their network environment. Examples of these APIs include quality-of-service on-demand, slice configuration and device onboarding. These APIs offer a longer-term monetisation opportunity for operators, although there is little visibility around what developers and enterprise will pay for these services (e.g., pay per use vs. monthly subscription, etc.).

In this report, we explore the work that is currently happening to develop network APIs from a technical and commercial point of view, surveying the telecoms industry consortia that are proactively building the technical and commercial tools to make network-as-a-service a revenue-driving success.

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Two API domains: The macro network and MEC

MEC APIs control both the compute and networking elements at the edge. In the instance that a telco is operating and managing the edge site, these APIs come under their remit. In some instances, however, the MEC APIs could be defining edge or cloud compute not operated by the telco. Therefore, we do not consider all MEC APIs to come under the umbrella of network APIs (See figure below).

MEC APIs vs. Network APIs

Source: STL Partners

A MEC API is a set of programming interfaces that allow developers to access and utilize the resources of mobile edge computing platforms. These resources include computing power, storage, and network connectivity, and can be used to run applications, services, and tasks at the edge of the network, closer to the end users. MEC APIs can provide a way to offload workloads from the cloud to the edge, reducing latency and improving the performance of applications and services. CSPs must make a strategic decision on where to focus their development: general network APIs (quality-on-demand, location, etc.) or MEC APIs (edge node discovery, intent-based workload placement, etc.).

Need for reliable, real-time connectivity across a wide area will drive demand

Based on our interviews with application developers, we developed a framework to assess the types of use cases network APIs are best suited to enable. This framework sets out the network API opportunity across two dimensions:

  • The geographic nature of the use case: Local area vs. wide-area use cases. This influences the type of edge that is likely to be used, with local-area use cases leveraging the on-premiseedge and wide-area use cases better suited to the network edge.
  • Need for real-time vs. non-real time insight and response: This depends on the mission criticality of the use case or the need from the application point of view to be dynamic (i.e., adapt to changing circumstances to maintain a consistent or enhanced customer experience).

As network operators, telcos’ primary value-add is the ability to provide quality connectivity. Application developers leverage awareness of the network throughout their development process, and the ability to define the network environment enables use cases which require constant, ultra-reliable connectivity (see figure below).

Importance of connectivity features for developers

Source: STL Partners Survey (December 2022), n=101

Table of Contents

  • Executive Summary
  • Network APIs promise new revenues for telcos
    • Two API domains: The macro network and MEC
    • Need for reliable, real-time connectivity across a wide area will drive demand
    • Layers of API needed to translate network complexity into valuable network functions
    • Cross-telco collaboration and engagement of developers
    • Each industry fora focuses on specific layers of the API value chain
  • Operators must leverage multiple distribution channels for network APIs
    • Failure to standardise quickly allows other distribution channels to achieve greater scale
    • Operators must engage the developer community to play an aggregator role
  • Challenges and barriers: What needs to change
  • Conclusion
  • Appendix
    • Understanding the fundamentals of APIs
    • What are network APIs and what has changed?

Related research

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MWC 2023: You are now in a new industry

The birth of a new sector: “Connected Technologies”

Mobile World Congress (MWC) is the world’s biggest showcase for the mobile telecoms industry. MWC 2023 marked the second year back to full scale after COVID disruptions. With 88k visitors, 2,400 exhibitors and 1,000 speakers it did not quite reach pre-COVID heights, but remained an enormous scale event. Notably, 56% of visitors came from industries adjacent to the core mobile ecosystem, reflecting STL’s view that we are now in a new industry with a diverse range of players delivering connected technologies.

With such scale It can be difficult to find the significant messages through the noise. STL’s research team attended the event in full force, and we each focused on a specific topic. In this report we distil what we saw at MWC 2023 and what we think it means for telecoms operators, technology companies and new players entering the industry.

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STL Partners research team at MWC 2023

STL-Partners-MWC23-research-team

The diversity of companies attending and of applications demonstrated at MWC23 illustrated that the business being conducted is no longer the delivery of mobile communications. It is addressing a broader goal that we’ve described as the Coordination Age. This is the use of connected technologies to help a wide range of customers make better use of their resources.

The centrality of the GSMA Open Gateway announcement in discussions was one harbinger of the new model. The point of the APIs is to enable other players to access and use telecoms resources more automatically and rapidly, rather than through lengthy and complex bespoke processes. It starts to open many new business model opportunities across the economy. To steal the words of John Antanaitis, VP Global Portfolio Marketing at Vonage, APIs are “a small key to a big door”.

Other examples from MWC 2023 underlining the transition of “telecommunications” to a sector with new boundaries and new functions include:

  • The centrality of ecosystems and partnerships, which fundamentally serve to connect different parts of the technology value chain.
  • The importance of sustainability to the industry’s agenda. This is about careful and efficient use of resources within the industry and enabling customers to connect their own technologies to optimise energy consumption and their uses of other scarce resources such as land, water and carbon.
  • An increasing interest and experimentation with the metaverse, which uses connected technologies (AR/VR, high speed data, sometimes edge resources) to deliver a newly visceral experience to its users, in turn delivering other benefits, such as more engaging entertainment (better use of leisure time and attention), and more compelling training experiences (e.g. delivering more realistic and lifelike emergency training scenarios).
  • A primary purpose of telco cloud is to break out the functions and technologies within the operators and network domains. It makes individual processes, assets and functions programmable – again, linking them with signals from other parts of the ecosystem – whether an external customer or partner or internal users.
  • The growing dialogues around edge computing and private networks –evolving ways for enterprise customers to take control of all or part of their connected technologies.
  • The importance of AI and automation, both within operators and across the market. The nature of automation is to connect one technology or data source to another. An action in one place is triggered by a signal from another.

Many of these connecting technologies are still relatively nascent and incomplete at this stage. They do not yet deliver the experiences or economics that will ultimately make them successful. However, what they collectively reveal is that the underlying drive to connect technologies to make better use of resources is like a form of economic gravity. In the same way that water will always run downhill, so will the market evolve towards optimising the use of resources through connecting technologies.

Table of contents

  • Executive Summary
    • The birth of a new sector: ‘Connected technologies’
    • Old gripes remain
    • So what if you are in a new industry?
    • You might like it
    • How to go from telco to connected techco
    • Next steps
  • Introduction
  • Strategy: Does the industry know where it’s going?
    • Where will the money come from?
    • Telcos still demanding their “fair share”, but what’s fair, or constructive?
    • Hope for the future
  • Transformation leadership: Ecosystem practices
    • Current drivers for ecosystem thinking
    • Barriers to wider and less linear ecosystem practices
    • Conclusion
  • Energy crisis sparks efficiency drive
    • Innovation is happening around energy
    • Orange looks to change consumer behaviour
    • Moves on measuring enablement effects
    • Key takeaways
  • Telco Cloud: Open RAN is important
    • Brownfield open RAN deployments at scale in 2024-25
    • Acceleration is key for vRAN workloads on COTS hardware
    • Energy efficiency is a key use case of open RAN and vRAN
    • Other business
    • Conclusion
  • Consumer: Where are telcos currently focused?
    • Staying relevant: Metaverse returns
    • Consumer revenue opportunities: Commerce and finance
    • Customer engagement: Utilising AI
  • Enterprise: Are telcos really ready for new business models?
    • Metaverse for enterprise: Pure hype?
    • Network APIs: The tech is progressing
    • …But commercial value is still unclear
    • Final takeaways:
  • Private networks: Coming over the hype curve
    • A fragmented but dynamic ecosystem
    • A push for mid-market adoption
    • Finding the right sector and the right business case
  • Edge computing: Entering the next phase
    • Telcos are looking for ways to monetise edge
    • Edge computing and private networks – a winning combination?
    • Network APIs take centre stage
    • Final thoughts
  • AI and automation: Opening up access to operational data
    • Gathering up of end-to-end data across multiple-domains
    • Support for network automations
    • Data for external use
    • Key takeaways

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The Telco Cloud Manifesto 2.0

Nearly two years on from our first Telco Cloud Manifesto published in March 2021, we are even more convinced that going through the pain of learning how to orchestrate and manage network workloads in a cloud-native environment is essential for telcos to successfully create new business models, such as Network-as-a-Service in support of edge compute applications.

Since the first Manifesto, hyperscalers have emerged as powerful partners and enablers for telcos’ technology transformation. But telcos that simply outsource to hyperscalers the delivery and management of their telco cloud, and of the multi-vendor, virtualised network functions that run on it, will never realise the true potential of telco cloudification. By contrast, evolving and maintaining an ability to orchestrate and manage multi-vendor, virtualised network functions end-to-end across distributed, multi-domain and multi-vendor infrastructure represents a vital control point that telcos should not surrender to the hyperscalers and vendors. Doing so could relegate telcos to a role as mere physical connectivity and infrastructure providers helping to deliver services developed, marketed and monetised by others.

In short, operators must take on the ‘workload’ of transforming into and acting as cloud-centric organisations before they shift their ‘workloads’ to the hyperscale cloud. In this updated Manifesto, we outline why, and what telcos at different stages of maturity should prioritise.

Two developments have taken place since the publication of our first manifesto that have changed the terms on which telcos are addressing network cloudification:

  • Hyperscale cloud providers have increasingly developed capabilities and commercial offers in the area of telco cloud. To telcos uncertain about the strategy and financial implications of the next phase of their investments, the hyperscalers appear to offer a shortcut to telco cloud: the possibility of avoiding doing all the hard yards of developing the private telco cloud, and of evolving the internal skills and processes for deploying and managing multi-vendor VNFs / CNFs over it. Instead, the hyperscalers offer the prospect of getting telco cloud and VNFs / CNFs on an ‘as-a-Service’ basis – fundamentally like any other cloud service.
  • In April 2021, DISH announced it would build its greenfield 5G network with AWS providing much of the virtual infrastructure layer and all of the physical cloud infrastructure. In June 2021, AT&T sold its private telco cloud platform to Microsoft Azure. In both instances, the telcos involved are now deploying mobile core network functions and, in DISH’s case, all of the software-based functions of its on a hyperscale cloud. These events appear superficially to set an example validating the idea of outsourcing telco cloud to the hyperscalers. After all, AT&T had previously been a champion of the DIY approach to telco cloud but now looked as though it had thrown in the towel and gone all in with outsourcing its cloud from Azure.

Two main questions arise from these developments, which we address in detail in this second Manifesto:

  • Should telcos embarked or embarking on a Pathway 2 strategy outsource their telco cloud infrastructure and procure their critical network functions – in whole or in part – from one or more hyperscalers, on an as-a-Service basis?
  • What is the broader significance of AT&T’s and DISH’s moves? Does it represent the logical culmination of telco cloudification and, if so, what are the technological and business-model characteristics of the ‘infrastructure-independent, cloud-native telco’, as we define this new Pathway 4? Finally, is this a model that all Pathway 3 players – and even all telcos per se – should ultimately seek to emulate?

In this second Manifesto, we also propose an updated version of our pathways describing telco network cloudification strategies for different sizes and types of telco to implement telco cloud. We now have four pathways (we had three in the original Manifesto), as illustrated in the figure below.

The four telco cloud deployment pathways in STL’s Telco Cloud Manifesto 2.0

Source: STL Partners, 2023

Existing subscribers can download the Manifesto at the top of this page. Everyone else, please go here.

If you wish to speak to us about our new Manifesto, please book a call.

Table of contents

  • Executive Summary
    • Recommendations
  • Pathway 1: No way back
    • Two constituencies at operators: Cloud sceptics and cloud advocates
  • Pathway 2: Hyperscalers – friend or foe?
    • Cloud-native network functions are a vital control point telcos must not relinquish
  • Pathway 3: Build own telco cloud competencies before deploying on public cloud
    • AT&T and DISH are important proof points but not applicable to the industry as a whole
    • But telcos will not realise the full benefits of telco cloud unless they, too, become software and cloud businesses
  • Pathway 4: The path to Network-as-a-Service
    • Pathway 4 networks will enable Network-as-a-Service
  • Conclusion: Mastery of cloud-native is key for telcos to create value in the Coordination Age

Related research

Our telco cloud research aligned to this topic includes:

 

Capturing the 5G SA opportunity: towards a multi-vendor approach

The 5G SA opportunity

5G SA is an exciting prospect for telecoms operators. With many operators’ revenues from traditional connectivity beginning to stagnate, or even decline, there is increased pressure for operators to create differentiation and offer new services, including by expanding across the value chain from connectivity-only providers.

STL Partners has described this new era, whereby operators must shift their business models to adapt to the new demands, as the Coordination Age 2. From the 1850s until around 1990, the Communications Age enabled people to communicate over long distances via telephony. Next came the Information Age, in which people could directly access content and applications, increasingly provided by non-telecommunications players. In the Coordination Age, ‘things’ are increasingly connecting to other ‘things’, leading to an exponential increase in volumes of data, but thanks to advanced analytics and artificial intelligence (AI) we can also address some of the most pressing issues facing the world today: ensuring resource efficiency and improving productivity to help us to do more with less.

Operators need to define their role in the emerging coordination age


Source: STL Partners

Transitioning to the Coordination Age requires operators to shift their goals and business models accordingly. Operators will need to offer or enable tightly coupled network services and applications to different industries, and continue to refresh, optimise and scale at an unprecedented rate.

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The transformative potential of 5G SA

5G SA, in comparison to its NSA counterpart, is the evolution of 5G that can deliver on the promises associated with the next generation of cellular networking. 5G SA is intended to be cloud native and adopt cloud-native principles. Without SA, 5G networks are less able to quickly launch new services, enable new use cases, or introduce more scalable, automated operating models.

The opportunities to which 5G SA is expected to give rise have been explored extensively in previous STL research. The ‘full potential’ of 5G SA includes promises around higher throughput, greater capacity, the ability to leverage enhanced mobile broadband (eMBB), ultra-reliable low latency communications (URLLC), and massive machine type communications (mMTC). In summary; do more (including enabling more connections at any given time), faster (down to a latency of a few milliseconds) and at a lower cost (through a variety of actors, including lower power consumption than 4G). These new capabilities are exciting for operators: enabling operators to develop powerful new applications for their customers with truly differentiated use cases.

One particular opportunity that 5G SA represents is network slicing. Slicing can be defined as ‘a mechanism to create and dynamically manage functionally discrete, virtualised networks over a common infrastructure,’ and has been the subject of several STL reports. The increased flexibility and agility of network slicing can enable operators to provide unique policies and differentiated services to their enterprise customers and recoup the substantial investments that rolling out 5G SA requires. However, the benefits and opportunities of 5G SA have implications far beyond the new services it can enable. For the first time, 5G is cloud-native by design, with modular service-based architecture giving
rise to greater flexibility and programmability. Furthermore, it leverages IT concepts of virtualization, cloudification, and DevOps processes. This does not so much enable as actively encourage a more agile operating model. Some of the exciting features of 5G SA include:

  • Automation – Increased automation throughout the network, including deployment, orchestration, assurance, and optimisation can give rise to “zero touch” networks that do not require human intervention, and can self repair and update autonomously on an ongoing basis. The aim of network automation is to reduce human error and the time taken to resolve issues through closed-loop network assurance.
  • Disaggregation – Relies on an open standard network operating system whereby different functional components of networking equipment can be deployed individually and then combined in a modular, fit for purpose way, to suit the requirements of an operator’s network. This architecture relies on the interworking between the multi-vendor components within the 5G core. Disaggregation can allow vendors to offer best in class capabilities for each individual component, providing operators with unprecedented choice and customizability.
  • Avoiding vendor lock-in through a diversified supply base – One of the key benefits of a disaggregated approach to the 5G core is to break vendor lock-in that has tended to dominate legacy approaches. Vendor lock-in can be a key limitation on the speed of innovation and service deployment.
  • Agility – Adopting a continuous improvement and development means accelerated innovation and speed of deployment. A software-orientated infrastructure can enable changes in business processes such as product development management to happen at a greater pace and speed time to market for new revenue generating products and features.
  • Scalability through adopting ‘hyperscale economics’ – Explored by STL Partners in previous research, this term describes the emulation of business and software practices developed by hyperscalers to deliver service innovation at scale whilst simultaneously reducing the level of capex relative to revenue.

Cloud native is the only way to truly unlock the benefits of 5G thanks to the automation, efficiency,
optimisation and mode of delivery that it enables. Ultimately, it allows operators to maximise the
opportunity of 5G to develop differentiated services to consumer and enterprises customers.

 

Table of Contents:

  • Executive Summary
    • Recommendations
  • Preface
  • The 5G SA opportunity
    • The transformative potential of 5G SA
    • 5G SA requires operators to develop and foster a new set of skills
    • Some open questions remain around 5G SA
  • The early adopter 5G SA landscape
    • Orange
    • Vodafone
    • Dish
  • Tier 2 and Tier 3 operator approaches to 5G SA
    • Adherents to a single vendor approach
    • Proponents of a multi-vendor approach
    • Several factors can influence an operators’ vendor strategy
  • Recommendations

Related research

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Telco Cloud Deployment Tracker: Will vRAN eclipse pure open RAN?

Is vRAN good enough for now?

In this October 2022 update to STL Partners’ Telco Cloud Deployment Tracker, we present data and analysis on progress with deployments of vRAN and open RAN. It is fair to say that open RAN (virtualised AND disaggregated RAN) deployments have not happened at the pace that STL Partners and many others had forecast. In parallel, some very significant deployments and developments are occurring with vRAN (virtualised NOT disaggregated RAN). Is open RAN a networking ideal that is not yet, or never will be, deployed in its purest form?

In our Telco Cloud Deployment Tracker, we track deployments of three types of virtualised RAN:

  1. Open RAN / O-RAN: Open, disaggregated, virtualised / cloud-native, with baseband (BU) functions distributed between a Central Unit (CU: control plane functions) and Distributed Unit (DU: data plane functions)
  2. vRAN: Virtualised and distributed CU/DU, with open interfaces but implemented as an integrated, single-vendor platform
  3. Cloud RAN (C-RAN): Single-vendor, virtualised / centralised BU, or CU only, with proprietary / closed interfaces

Cloud RAN is the most limited form of virtualised RAN: it is based on porting part or all of the functionality of the legacy, appliance-based BU into a Virtual Machine (VM). vRAN and open RAN are much more significant, in both technology and business-model terms, breaking open all parts of the RAN to more competition and opportunities for innovation. They are also cloud-native functions (CNFs) rather than VM-based.

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2022 was meant to be the breakthrough year for open RAN: what happened?

  • Of the eight deployments of open RAN we were expecting to go live in 2022 (shown in the chart below), only three had done so by the time of writing.
  • Two of these were on the same network: Altiostar and Mavenir RAN platforms at DISH. The other was a converged Parallel Wireless 2G / 3G RAN deployment for Orange Central African Republic.
  • This is hardly the wave of 5G open RAN, macro-network roll-outs that the likes of Deutsche Telekom, Orange, Telefónica and Vodafone originally committed to for 2022. What has gone wrong?
  • Open RAN has come up against a number of thorny technological and operational challenges, which are well known to open RAN watchers:
    • integration challenges and costs
    • hardware performance and optimisation
    • immature ecosystem and unclear lines of accountability when things go wrong
    • unproven at scale, and absence of economies of scale
    • energy efficiency shortcomings
    • need to transform the operating model and processes
    • pressured 5G deployment and Huawei replacement timelines
    • absence of mature, open, horizontal telco cloud platforms supporting CNFs.
  • Over and above these factors, open RAN is arguably not essential for most of the 5G use cases it was expected to support.
  • This can be gauged by looking at some of the many open RAN trials that have not yet resulted in commercial deployments.

Global deployments of C-RAN, vRAN and open RAN, 2016 to 2023

Image shows global deployments of C-RAN, vRAN and open RAN, 2016 to 2023

Source: STL Partners

Previous telco cloud tracker releases and related research

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5G standalone (SA) core: Why and how telcos should keep going

Major 5G Standalone deployments are experiencing delays…

There is a widespread opinion among telco industry watchers that deployments of the 5G Standalone (SA) core are taking longer than originally expected. It is certainly the case that some of the world’s leading operators, and telco cloud innovators, are taking their time over these deployments, as illustrated below:

  • AT&T: Has no current, publicly announced deadline for launching its 5G SA core, which was originally expected to be deployed in mid-2021.
  • Deutsche Telekom: Launched an SA core in Germany on a trial basis in September 2022, having previously acknowledged that SA was taking longer than originally expected. In Europe, the only other opco that is advancing towards commercial deployment is Magenta Telekom in Austria. In 2021, the company cited various delay factors, such as 5G SA not being technically mature enough to fulfil customers’ expectations (on speed and latency), and a lack of consumer devices supporting 5G SA.
  • Rakuten Mobile: Was expected to launch an SA core co-developed with NEC in 2021. But at the time of writing, this had still not launched.
  • SK Telecom: Was originally expected to launch a Samsung-provided SA core in 2020. However, in November 2021, it was announced that SK Telecom would deploy an Ericsson converged Non-standalone (NSA) / SA core. By the time of writing, this had still not taken place.
  • Telefónica: Has carried out extensive tests and pilots of 5G SA to support different use cases but has no publicly announced timetable for launching the technology commercially.
  • Verizon: Originally planned to launch its SA core at the end of 2021. But this was pushed back to 2022; and recent pronouncements by the company indicate a launch of commercial services over the SA core only in 2023.
  • Vodafone: Has launched SA in Germany only, not in any of its other markets; and even then, nationwide SA coverage is not expected until 2025. An SA core is, however, expected to be launched in Portugal in the near future, although no definite deadline has been announced. A ‘commercial pilot’ in three UK cities, launched in June 2021, had still not resulted in a full commercial deployment by the time of writing.

…but other MNOs are making rapid progress

In contrast to the above catalogue of delay, several other leading operators have made considerable progress with their standalone deployments:

  • DISH: Launched its SA core- and open RAN-based network in the US, operated entirely over the AWS cloud, in May 2022. The initial population coverage of the network was required to be 20%. This is supposed to rise to 70% by June 2023.
  • Orange: Proceeding with a Europe-wide roll-out, with six markets expected to go live with SA cores in 2023.
  • Saudi Telecom Company (STC): Has launched SA services in two international markets, Kuwait (May 2021) and Bahrain (May 2022). Preparations for a launch in Saudi Arabia were ongoing at the time of writing.
  • Telekom Austria Group (A1): Rolling out SA cores across four markets in Central Europe (Bulgaria, Croatia, Serbia and Slovenia), although no announcement has been made regarding a similar deployment in its home market of Austria. In June 2022, A1 also carried out a PoC of end-to-end, SA core-enabled network slicing, in partnership with Amdocs.
  • T-Mobile US: Has reportedly migrated all of its mobile broadband traffic over to its SA core, which was launched back in 2020. It also launched one of the world’s first voice-over-New Radio (VoNR) services, run over the SA core, in parts of two cities in June 2022.
  • Zain (Kuwait): Launched SA in Saudi Arabia in February 2022, while a deployment in its home market was ongoing at the time of writing.
  • There are also a number of trials, and prospective and actual deployments, of SA cores over the public cloud in Europe. These are serving the macro network, not edge or private-networking use cases. The most notable examples include Magenta Telekom (Deutsche Telekom’s Austrian subsidiary, partnering with Google Cloud); Swisscom (partnering with AWS); and Working Group Two (wgtwo) – a Cisco and Telenor spin-off – that offers a multi-tenant, cloud-native 5G core delivered to third-party MNOs and MVNOs via the AWS cloud.
  • The three established Chinese MNOs are all making rapid progress with their 5G SA roll-outs, having launched in either 2020 (China Telecom and China Unicom) or 2021 (China Mobile). The country’s newly launched, fourth national player, Broadnet, is also rolling out SA. However, it is not publicly known what share of the country’s reported 848 million-odd 5G subscribers (at March 2022) were connected to SA cores.
  • At least eight other APAC operators had launched 5G SA-based services by July 2022, including KT in South Korea, NTT Docomo and SoftBank in Japan and Smart in the Philippines.

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Many standalone deployments in the offing – but few fixed deadlines

So, 5G standalone deployments are definitely a mixed bag: leading operators in APAC, Europe, the Middle East and North America are deploying and have launched at scale, while other leading players in the same regions have delayed launches, including some of the telcos that have helped drive telco cloud as a whole over the past few years, e.g. AT&T, Deutsche Telekom, Rakuten, Telefónica and Vodafone.

In the July 2022 update to our Telco Cloud Deployment Tracker, which contained a ‘deep dive’ on 5G core roll-outs, we presented an optimistic picture of 5G SA deployments. We pointed out that the number of SA and converged NSA / SA cores. We expect to be launched in 2022 outnumbered the total of NSA deployments. However, as illustrated in the figure below, SA and converged NSA/SA cores are still the minority of all 5G cores (29% in total).

We should also point out that some of the SA and converged NSA / SA deployments shown in the figure below are still in progress and some will continue to be so in 2023. In other words, the launch of these core networks has been announced and we have therefore logged them in our tracker, but we expect that the corresponding deployments will be completed in the remainder of 2022 or in 2023, based on a reasonable, typical gap between when the deployments are publicly announced and the time it normally takes to complete them. If, however, more of these predicted deployments are delayed as per the roll-outs of some of leading players listed above, then we will need to revise down our 2022 and 2023 totals.

Global 5G core networks by type, 2018 to 2023

 

Source: STL Partners

Table of contents

  • Executive Summary
  • Introduction
    • Major 5G Standalone deployments are experiencing delays
    • …but other MNOs are making rapid progress
    • Many SA deployments in the offing – but few fixed deadlines
  • What is holding up deployments?
    • Mass-market use cases are not yet mature
    • Enterprise use cases exploiting an SA core are not established
    • Business model and ROI uncertainty for 5G SA
    • Uncertainty about the role of hyperscalers
    • Coordination of investments in 5G SA with those in open RAN
    • MNO process and organisation must evolve to exploit 5G SA
  • 5G SA progress will unlock opportunities
    • Build out coverage to improve ‘commodity’ services
    • Be first to roll out 5G SA in the national market
    • For brownfield deployments, incrementally evolve towards SA
    • Greenfield deployments
    • Carefully elaborate deployment models on hyperscale cloud
    • Work through process and organisational change
  • Conclusion: 5G SA will enable transformation

    Related research

    Previous STL Partners reports aligned to this topic include:

  • Telco Cloud Deployment Tracker: 5G core deep dive
  • Telco cloud: short-term pain, long-term gain
  • Telco Cloud Deployment Tracker: 5G standalone and RAN

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Pursuing hyperscale economics

The promise of hyperscale economics

Managing demands and disruption

As telecoms operators move to more advanced, data intensive services enabled by 5G, fibre to the X (FTTX) and other value-added services, they are looking to build the capabilities to support the growing demands on the network. However, in most cases, telco operators are expanding their own capabilities in such a way that results in their costs increasing in line with their capabilities.

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This is becoming an increasingly pressing issue given the commoditisation of traditional connectivity services and changing competitive dynamics from within and outside the telecoms industry. Telcos are facing stagnating or declining ARPUs within the telecoms sector as price becomes the competitive weapon and service differentiation of connectivity services diminishes.A

The competitive landscape within the telecoms industry is also becoming much more dynamic, with differences in progress made by telecoms operators adopting cloud-native technologies from a new ecosystem of vendors. At the same time, the rate of innovation is accelerating and revenue shares are being eroded due to the changes in the competitive landscape and the emergence of new competitors, including:

  • Greenfield operators like DISH and Rakuten;
  • More software-centric digital enterprise service providers that provide advanced innovative applications and services;
  • Content and SaaS players and the hyperscale cloud providers, such as AWS, Microsoft and Google, as well as the likes of Netflix and Disney.

We are in another transition period in the telco space. We’ve made a lot of mess in the past, but now everyone is talking about cloud-native and containers which gives us an opportunity to start over based on the lessons we‘ve learned.

VP Cloudified Production, European converged operator 1

Even for incumbents or established challengers in more closed and stable markets where connectivity revenues are still growing, there is still a risk of complacency for these telcos. Markets with limited historic competition and high barriers to entry can be prone to major systemic shocks or sudden unexpected changes to the market environment such as government policy, new 5G entrants or regulatory changes that mandate for structural separation.

Source:  Company accounts, stock market data; STL Partners analysis

Note: The data for the Telecoms industry covers 165 global telecoms operators

Telecoms industry seeking hyperscaler growth

The telecoms industry’s response to threats has traditionally been to invest in better networks to differentiate but networks have become increasingly commoditised. Telcos can no longer extract value from services that exclusively run on telecoms networks. In other words, the defensive moat has been breached and owning fibre or spectrum is not sufficient to provide an advantage. The value has now shifted from capital expenditure to the network-independent services that run over networks. The capital markets therefore believe it is the service innovators – content and SaaS players and internet giants such as Amazon, Microsoft or Apple – that will capture future revenue and profit growth, rather than telecoms operators. However, with 5G, edge computing and telco cloud, there has been a resurgence in interest in more integration between applications and the networks they run over to leverage greater network intelligence and insight to deliver enhanced outcomes.

Defining telcos’ roles in the Coordination Age

Given that the need for connectivity is not going away but the value is not going to grow, telcos are now faced with the challenge of figuring out what their new role and purpose is within the Coordination Age, and how they can leverage their capabilities to provide unique value in a more ecosystem-centric B2B2X environment.

Success in the Coordination Age requires more from the network than ever before, with a greater need for applications to interface and integrate with the networks they run over and to serve not only customers but also new types of partners. This calls for the need to not only move to more flexible, cost-effective and scalable networks and operations, but also the need to deliver value higher up in the value chain to enable further differentiation and growth.

Telcos can either define themselves as a retail business selling mobile and last mile connectivity, or figure out how to work more closely with demanding partners and customers to provide greater value. It is not just about scale or volume, but about the competitive environment. At the end of the day, telcos need to prepare for the capabilities to do innovative things like dynamic slicing.

Group Executive, Product and Technology, Asia Pacific operator

Responding to the pace of change

The introduction of cloud-native technologies and the promise of software-centric networking has the potential to (again) significantly disrupt the market and change the pace of innovation. For example, the hyperscale cloud providers have already disrupted the IT industry and are seen simultaneously as a threat, potential partners and as a model example for operators to adopt. More significantly, they have been able to achieve significant growth whilst still maintaining their agile operations, culture and mindset.

With the hyperscalers now seeking to play a bigger role in the network, many telco operators are looking to understand how they should respond in light of this change of pace, otherwise run the risk of being relegated to being just the connectivity provider or the ‘dumb pipe’.

Our report seeks to address the following key question:

Can telecoms operators realistically pursue hyperscale economics by adopting some of the hyperscaler technologies and practices, and if so, how?

Our findings in this report are based on an interview programme with 14 key leaders from telecoms operators globally, conducted from June to August 2021. Our participant group spans across different regions, operator types and types of roles within the organisation.

Related research

Will web 3.0 change the role of telcos?

Introduction

Over the past 12 months or so, the notion that the Internet is about to see another paradigm shift has received a lot of airtime. Amid all the dissatisfaction with way the Internet works today, the concept of a web 3.0 is gaining traction. At a very basic level, web 3.0 is about using blockchains (distributed ledgers) to bring about the decentralisation of computing power, resources, data and rewards.

STL Partners has written extensively about the emergence of blockchains and the opportunities they present for telcos. But this report takes a different perspective – it considers whether blockchains and the decentralisation they embody will fix the public Internet’s flaws and usher in a new era of competition and innovation. It also explores the potential role of telcos in reinventing the web in this way and whether it is in their interests to support the web 3.0 movement or protect the status quo.

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 web 3.0, telcos could help develop solutions and services that can help bridge the gap between the fully decentralised vision of libertarians and governments’ desire to retain control and regulate the digital world.

As it considers the opportunities for telcos, this report draws on the experiences and actions of Deutsche Telekom, Telefónica and Vodafone. It also builds on previous STL Partners reports including:

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What do we mean by web 3.0?

The term web 3.0 is widely used to refer to the next step change in the evolution of the Internet. For some stakeholders, it is about the integration of the physical world and the digital world through the expansion of the Internet of Things, the widespread use of digital twins and augmented reality and virtual reality. This concept, which involves the capture and the processing of vast amounts of real-time, real-world data, is sometimes known as the spatial web.

While recognising the emergence of a spatial web, Nokia, for example, has defined web 3.0 as a “visually dynamic smart web” that harness artificial intelligence (AI) and machine learning (ML). It describes web 3.0 as an evolution of a “semantic web” with capacity to understand knowledge and data. Nokia believes that greater interconnectivity between machine-readable data and support for the evolution of AI and ML across “a distributed web” could remake ecommerce entirely.

Note, some of these concepts have been discussed for more than a decade. The Economist wrote about the semantic web in 2008, noting then that some people were trying to rebrand it web 3.0.

Today, the term web 3.0 is most widely used as a shorthand for a redistribution of power and data – the idea of decentralising the computation behind Internet services and the rewards that then ensue. Instead of being delivered primarily by major tech platforms, web 3.0 services would be delivered by widely-distributed computers owned by many different parties acting in concert and in line with specific protocols. These parties would be rewarded for the work that their computers do.

This report will focus primarily on the latter definition. However, the different web 3.0 concepts can be linked. Some commentators would argue that the vibrancy and ultimate success of the spatial web will depend on decentralisation. That’s because processing the real-world data captured by a spatial web could confer extraordinary power to the centralised Internet platforms involved. Indeed, Deloitte has made that link (see graphic below).

In fact, one of the main drivers of the web 3.0 movement is a sense that a small number of tech platforms have too much power on today’s Internet. The contention is that the current web 2.0 model reinforces this position of dominance by funnelling more and more data through their servers, enabling them to stay ahead of competitors. For web 3.0 proponents, the remedy is to redistribute these data flows across many thousands of different computers owned by different entities.  This is typically accomplished using what is known as decentralised apps (dapps) running on a distributed ledger (often referred to as a blockchain), in which many different computers store the code and then record each related interaction/transaction.

The spatial web and web 3.0 – two sides of the same coin?

Spacial-web-Web3-Deloitte

Source: Deloitte

For many commentators, distributed ledgers are at the heart of web 3.0 because they enable the categorisation and storage of data without the need for any central points of control. In an article it published online, Nokia predicted new application providers will displace today’s tech giants with a highly distributed infrastructure in which users own and control their own data. “Where the platform economy gave birth to companies like Uber, Airbnb, Upwork, and Alibaba, web 3.0 technology is driving a new era in social organization,” Nokia argues. “Leveraging the convergence of AI, 5G telecommunications, and blockchain, the future of work in the post-COVID era is set to look very different from what we’re used to. As web 3.0 introduces a new information and communications infrastructure, it will drive new forms of distributed social organisation…Change at this scale could prove extremely challenging to established organisations, but many will adapt and prosper.”

Nokia appears to have published that article in March 2021, but the changes it predicted are likely to happen gradually over an extended period. Distributed ledgers or blockchains are far from mature and many of their flaws are still being addressed. But there is a growing consensus that they will play a significant role in the future of the Internet.

Nokia itself is hoping that the web 3.0 movement will lead to rising demand for programmable networks that developers can harness to support decentralised services and apps. In June 2022, the company published a podcast in which Jitin Bhandari, CTO of Cloud and Network Services at Nokia, discusses the concept of “network as code” by which he means the creation of a persona of the network that can be programmed by ecosystem developers and technology application partners “in domains of enterprise, in domains of web 2.0 and web 3.0 technologies, in domains of industry 4.0 applications, in scenarios of operational technology (OT) applications.”  Nokia envisions that 5G networks will be able to participate in what it calls distributed service chains – the interlinking of multiple service providers to create new value.

Although blockchains are widely associated with Bitcoin, they can enable much more than crypto-currencies. As a distributed computer, a blockchain can be used for multiple purposes – it can store the number of tokens in a wallet, the terms of a self-executing contract, or the code for a decentralised app.

As early as 2014, Gavin Wood, the founder of the popular Ethereum blockchain, laid out a vision that web 3.0 will enable users to exchange money and information on the web without employing a middleman, such as a bank or a tech company. As a result, people would have more control over their data and be able to sell it if they choose.

Today, Ethereum is one of the most widely used (and trusted) blockchains. It bills itself as a permissionless blockchain, which means no one controls access to the service – there are no gatekeepers.

Still, as the Ethereum web site acknowledges, there are several disadvantages to web 3.0 decentralisation, as well as advantages. The graphic below which draws on Ethereum’s views and STL analysis, summarises these pros and cons.

Table of Contents

  • Executive Summary
    • Three ways in which telcos can support web 3.0
    • Challenges facing web 3.0
  • Introduction
  • What do we mean by web 3.0?
    • Transparency versus privacy
    • The money and motivations behind web 3.0
    • Can content also be unbundled?
    • Smart contracts and automatic outcomes
    • Will we see decentralised autonomous organisations?
    • Who controls the user experience?
    • Web 3.0 development on the rise
  • The case against web 3.0
    • Are blockchains really the way forward?
    • Missteps and malign forces
  • Ironing out the wrinkles in blockchains
  • Could and should telcos help build web 3.0?
    • Validating blockchains
    • Telefónica: An interface to blockchains
    • Vodafone: Combining blockchains with the IoT
  • Conclusions

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Why B2B marketplace sits at the heart of a thriving ecosystem

B2B Marketplaces: A key enabler for new growth

What is a B2B marketplace?

At its core, a marketplace is an entity through which buyers and sellers can effectively and efficiently transact. It provides a platform to reduce friction for the provisioning of products, services, and solutions: connecting a distributed ecosystem of suppliers with an equally distributed ecosystem of customers.

Think of Amazon, which orchestrates a B2C retail marketplace – Amazon’s marketplace has created a site in which a host of different vendors, whether regional or global, major corporate or small/medium enterprise (SME), can compete directly with one another (and in some cases directly with Amazon’s own products) to reach and serve a wide scale customer base. Using the example of Amazon, we can therefore describe four key actors within the marketplace:

Key actors in a marketplace

B2B marketplace

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  • Customers: Amazon’s marketplace creates a simple tool through which users can seamlessly identify, evaluate, and purchase products from a wider range of sellers. These suppliers, due to competition, must continuously innovate to create value for customers or risk competing solely on price. This provides a strong proposition combining ease, choice, and value for the customer. For smaller enterprises and for more simple services (e.g. cybersecurity, productivity software) a B2C-style marketplace works well. Amazon provides a good example of a B2C marketplace – however, for larger enterprises requiring more complex, verticalised solutions, the Amazon “one click purchasing” capability may be less appropriate.
    The marketplace still acts as an entity within which enterprises can identify new, innovative, solution providers and evaluate different components/vendors but may act more as a discovery mechanism – it generates a customer lead for suppliers and a vendor lead for customers. The customer will go on to engage directly with a sales team or representative within the vendor, rather than purchasing and spinning up the service directly through the marketplace. This is because the solution sales cycle is complex and requires a deep knowledge of the end customer and vertical specific expertise. To generate revenue, the orchestrator in this situation would have to create a comparative tool pricing for the use of these larger players.
    Particularly for more fragmented industries with a significant number of SMEs, offering pre-integrated, out-of-the-box solutions still offers the orchestrator a strong revenue opportunity.
  • Suppliers: In the context of B2B, suppliers in the marketplace may offer holistic vertical solutions including end devices, connectivity, applications, infrastructure etc. or sell those capabilities as individual components. Through participation in the marketplace, these vendors gain a strong distribution channel to sell their solution. Furthermore, they can get to market with solutions much faster than a more traditional, vertically integrated route, which would require longer cycles of integration and testing between partners, more investment in marketing & sales engines, and the need to repeat the process with each channel/solution partner identified.
    It also acts as a platform through which to learn more about competitors, identify or even engage potential partners, and understand more about their end customer needs and drivers. The marketplace can therefore act as a tangible entity around which the supply side ecosystem can innovate. This is through varying levels of data and insights, collected through the marketplace, which the orchestrator may allow certain suppliers to access.
  • Orchestrators: Orchestrators help coordinate the underlying community of suppliers and customers, defining the dimensions of the marketplace (which we will discuss further in a later section of the report). They set the parameters and objectives of the marketplace (e.g. which suppliers to onboard to the marketplace and how, which customers to target), and bring additional value to suppliers and customers through insights, supplier and customer experience, and marketing and sales engines to build scale.
    As the orchestrator of the ecosystem, Amazon has leveraged these supply and demand side benefits to grow into the retail giant that we know today. It has successfully driven a flywheel to build scale with suppliers and customers, and subsequently monetised this scale through a variety of different revenue streams – we will discuss these further later in the report.

The Amazon flywheel for marketplace success

B2B marketplace

  • Enablers: For a marketplace to function smoothly, a flexible but resilient backbone of support systems is required. This includes everything from billing, to authentication, onboarding, fulfilment, delivery, settlement, etc. A digital marketplace can automate many of these functions, diminishing the friction of interaction between partners, vendors, and customers.
    Oftentimes, these enablement services will be managed by an orchestrator who has complete oversight of the marketplace. Going back to the example of Amazon, Amazon not only orchestrates the marketplace but provides enablement services to capture additional value and revenue streams. This is in slight contrast, for example, to Ebay, which orchestrates the marketplace between different sellers, but is less involved in the delivery and fulfilment of the order. There is, therefore, nuance around how much of a role the orchestrator may take in the marketplace, and whether they partner to deliver enabling capabilities or completely outsource them to others. Enablers are, however, essential for a functioning marketplace and drive simplicity and stickiness for all actors. 

In summary, the marketplace brings opportunities to each of the actors within it and helps galvanise a diverse and fragmented ecosystem around a tangible construct. It enables customers to reach new suppliers, suppliers to reach new customers as well as engage new partners, and the orchestrators and enablers to drive new streams of revenue growth.

Table of Contents

  • Executive Summary
  • B2B Marketplaces: A key enabler for new growth
    • What is a B2B marketplace?
  • Marketplaces as a B2B growth driver
  • The dimensions of a successful B2B marketplace in healthcare
    • Due to the need for solution certification, a healthcare marketplace will remain more closed and centrally controlled
    • The healthcare marketplace will encourage participants to collaborate while excluding competitors…at first
    • Telcos should create value in the marketplace by driving biodiversity
    • Telcos have the capacity to collect valuable customer data insights but must first develop their capabilities
  • The guiding principles for building a marketplace: Where telcos should start
  • Index

Related Research

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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

edge platform

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.

Table of Contents

  • 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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MWC 2022: Sensing the winds of change

What did STL’s analysts find at MWC 2022?

This report is a collection of our analyst’s views of what they saw at the 2022 Mobile World Congress (MWC 2022). It comprises our analysts’ perspectives on its major themes:

  • How the industry is changing overall
  • The impact of the metaverse
  • New enterprise and consumer propositions
  • Progress towards telco cloud
  • Application of AI, automation and analytics (A3)

We would like to thank our partners at the GSMA for a good job done well. The GSMA say that there were 60,000 attendees this year, which is down from the 80-100k of 2019 but more than credible given the ongoing COVID-19 situation. It was nonetheless a vibrant and valuable event, and a great opportunity to see many wonderful people again face to face, and indeed, meet some great new ones.

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MWC 2022 in context of its time

It is impossible to write about MWC 2022 without putting it context of its time. It has taken place three days after the Russian invasion of Ukraine started on February 24th, 2022.

Speakers made numerous direct and indirect mentions of the war, and it was clear that a sense of sadness was felt by everyone we spoke to. This slightly offset the enthusiasm and warmth that we and many others felt on being back together in person, with our clients and the industry.

Broad support for the Ukraine was visible among many delegates and there was no Russian delegation. While totally appropriate, the Fira was a little poorer for that as one of the joys of MWC is its truly global embodiment of a vibrant industry.

We all hope for a speedy and peaceful resolution to that situation, and to see our Russian and Ukrainian colleagues again in peace soon. Sadly, as we write from and just after Barcelona, bombs and shells are falling on civilians on the same continent and the route to peace is not yet evident.

As this new and shocking war has come in Europe while COVID is still in a pandemic phase it is a reminder that change and challenge never ends. The telecoms industry responded well to COVID, and now it must again for this and all the challenges it will face in the future, which include further geopolitical risks and shocks and many more opportunities too.

The biggest opportunity for telecoms, and telcos in particular, is to build on the momentum of change rather than rest on its laurels. The threat is that it will settle for a low risk but ultimately lower value path of sticking to the same old same.  We look at the evidence for telcos successfully changing their mindset in New enterprise business: Opening, if not yet changed mindsets.

Connecting technologies

This is my 11th MWC. I came looking for what’s changed and what it means. This is what I found. Andrew Collinson, Managing Director, STL Partners Research.

Cross-dressing and role play

Trying to leave the war at the door, what else did we find at the Fira? One of the mind-bending tasks of walking through the cacophony of sights and sounds of a huge industry ecosystem on display is trying to make sense of what is going on. Who is here, and what are they trying to tell me?

First impressions count. The simple things about how companies present themselves initially mean a great deal. They often show the identity they are trying to project – who or what they are trying to be seen as more than all the detail put together. The first impression I got at MWC 2022 was that almost everyone was trying to dress like someone else.

Microsoft showed photos of cell towers on its stand while all the telco CEOs talked about the “new tech order” and becoming techcos. McKinsey talked about its ‘old friends’ in the telecoms industry and talked about sustainability on its hard-edged stand, while AWS had an advert on the frontage of the Fira and a stand in the “Four Years from Now” zone.

We’re all telcos / techcos now

We're all telcos techcos now

Source: STL Partners, AWS, Microsoft, McKinsey

It’s all about “connecting technologies”

Regular readers of STL’s material will have heard of the Coordination Age: our concept that there is a universal need for better use of resources which will be met in part by the application of connecting technologies (e.g. fibre, mobile, 5G, AI, automation, etc.).

Once upon a time, it was simply people that needed to be connected to each other. Now a huge variety of stuff needs connecting: e.g., devices, computer applications, business processes, business assets and people.

A big question in all this is whether operators have really understood how outdated their traditional operator centric view of the world has become as the industry has changed. Sure, new telecoms networks still need to be built and extended. But it isn’t just operators using licensed technologies that can do this anymore, and the value has increasingly moved to the players that can make all the stuff work: systems integrators and other technology and software players. We’ll cover operators’ mindsets more in the section titled New enterprise business: Opening, if not yet changed mindsets.

Private matters

Private networks was also a big area of focus at MWC 2022, and understandably so too as there is a lot of interest in the concept in various sectors, especially in ports and airports, mining, and manufacturing. Much of the interest for this comes from the hype around 5G which has attracted other industries to look at the technology. However, while there are some interesting developments in practice (for example Huawei and others at Shenzen port in China), many of the applications are at least as well served, and in some cases, better served by other connectivity technologies, e.g. Wi-Fi, wired connections, narrow-band IoT, and 3G / 4G, edge computing and combinations thereof. So 5G is far from the only horse in the race, and we will be looking closely at the boundary conditions and successful use cases for Private 5G in our future research.

Would you pay for “unexpected benefits”?

One great stumbling block for telcos and other business used to traditional business thinking has been “how do you make a business case for new technology?”

The classic telecoms route is to dig around for a cost-saving and revenue enhancement case and then try to bend the CFO’s ear until they give you some money to do your thing. This is fair enough, to a point.

The challenge is, what do you do when you don’t know what you are going to find and/or you can’t prove it? Or worse still, you can only prove it after everybody else in the market has proven it for you and you are then at a competitive disadvantage.

One story I saw and see elsewhere repeated endlessly is that of “unexpected benefits”. This was a phrase that Alison Kirkby, CEO Telia, used to describe what happened when the value of its population movement data was recognised by the Swedish Government during the COVID crisis. It had pulled together the data for one set of reasons, and suddenly this very compelling use came to light.

Another I heard from Qualcomm, which told of putting IoT driven shelf price signs in retail. Originally it was developed to help rapid repricing for consumers in store, then COVID struck a few weeks after installation. This meant people switched to online shopping and the stores were then mainly used by  pickers assembling orders for delivery. The retailer found that by using the signs to help the pickers assemble their loads faster they could make the process about a third more productive. That’s a lot in retail.

This is the reality of transformational business models and technologies. It is incredibly hard to foresee what is really going to work, and how. Even after some time with a new way of working new uses continue to emerge. That’s not to say that you can’t narrow it down a bit – and this is something we spend a lot of our time working on. However, a new thing I will be asking our analysts to help figure out is “how can you tell when and where there are likely to be unexpected benefits?”

 

Table of Contents

  • Executive Summary
  • Introduction
    • MWC 2022 in context of its time
  • MWC 2022: Connecting technologies
    • Cross-dressing and role play
    • Would you pay for “unexpected benefits”?
    • Getting physical, getting heavy
    • Glasses are sexy (again)
    • Europe enviously eyes eastwards
  • New enterprise business: Opening, if not yet changed mindsets
    • Customer centricity: Starting to emerge
    • Becoming better partners: Talking the talk
    • New business models: Not quite there
  • The Metaverse: Does it really matter?
    • Can the Metaverse be trusted?
    • Exploding supply, uncertain quality
    • The non-fungible flexibility paradox
    • A coordinating role for telcos?
    • Don’t write it off, give it a go
  • Consumers: XR, sustainability and smarthome
    • Operators: Aiming for smart and sustainable
    • Vendors and techcos: Would you like AI with that?
    • More Metaverse, VR and AR
    • Other interesting finds: Commerce, identity, video
  • Telco Cloud: The painful gap between theory and practice
    • Brownfield operators are still on their virtualisation journey
    • Greenfield operators: Cloud native and automated from day one
    • Telcos on public could: Shall I, shant I?
  • AI and automation: Becoming adaptive
    • Looking out for good A3 use cases / case studies
    • Evidence of a maturing market?
    • Welcome signs of progress towards the Coordination Age

 

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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.

Table of contents

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

Related Research

 

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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

Live entertainment

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:

Contents

  • 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

We have updated this forecast. Check the latest report here

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:

  1. Cost: There is a cost to renovate an existing telco site and ensure it meets requirements common for world-class data centres.
  2. 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.
  3. 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.
  4. 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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Commerce and connectivity: A match made in heaven?

Rakuten and Reliance: The exceptions or the rule?

Over the past decade, STL Partners has analysed how connectivity, commerce and content have become increasingly interdependent – as both shopping and entertainment go digital, telecoms networks have become key distribution channels for all kinds of consumer businesses. Equally, the growing availability of digital commerce and content are driving demand for connectivity both inside and outside the home.

To date, the top tier of consumer Internet players – Google, Apple, Amazon, Alibaba, Tencent and Facebook – have tended to focus on trying to dominate commerce and content, largely leaving the provision of connectivity to the conventional telecoms sector. But now some major players in the commerce market, such as Rakuten in Japan and Reliance in India, are pushing into connectivity, as well as content.

This report considers whether Rakuten’s and Reliance’s efforts to combine content, commerce and connectivity into a single package is a harbinger of things to come or the exceptions that will prove the longstanding rule that telecoms is a distinct activity with few synergies with adjacent sectors. The provision of connectivity has generally been regarded as a horizontal enabler for other forms of economic activity, rather than part of a vertically-integrated service stack.

This report also explores the extent to which new technologies, such as cloud-native networks and open radio access networks, and an increase in licence-exempt spectrum, are making it easier for companies in adjacent sectors to provide connectivity. Two chapters cover Google and Amazon’s connectivity strategies respectively, analysing the moves they have made to date and what they may do in future. The final section of this report draws some conclusions and then considers the implications for telcos.

This report builds on earlier STL Partners research, including:

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Mixing commerce and connectivity

Over the past decade, the smartphone has become an everyday shopping tool for billions of people, particularly in Asia. As a result, the smartphone display has become an important piece of real estate for the global players competing for supremacy in the digital commerce market. That real estate can be accessed via a number of avenues – through the handset’s operating system, a web browser, mobile app stores or through the connectivity layer itself.

As Google and Apple exercise a high degree of control over smartphone operating systems, popular web browsers and mobile app stores, other big digital commerce players, such as Amazon, Facebook and Walmart, risk being marginalised. One way to avoid that fate may be to play a bigger role in the provision of wireless connectivity as Reliance Industries is doing in India and Rakuten is doing in Japan.

For telcos, this is potentially a worrisome prospect. By rolling out its own greenfield mobile network, e-commerce, and financial services platform Rakuten has brought disruption and low prices to Japan’s mobile connectivity market, putting pressure on the incumbent operators. There is a clear danger that digital commerce platforms use the provision of mobile connectivity as a loss leader to drive to traffic to their other services.

Table of Contents

  • Executive Summary
  • Introduction
  • Mixing connectivity and commerce
    • Why Rakuten became a mobile network operator
    • Will Rakuten succeed in connectivity?
    • Why hasn’t Rakuten Mobile broken through?
    • Borrowing from the Amazon playbook
    • How will the hyperscalers react?
  • New technologies, new opportunities
    • Capacity expansion
    • Unlicensed and shared spectrum
    • Cloud-native networks and Open RAN attract new suppliers
    • Reprogrammable SIM cards
  • Google: Knee deep in connectivity waters
    • Google Fiber and Fi maintain a holding pattern
    • Google ramps up and ramps down public Wi-Fi
    • Google moves closer to (some) telcos
    • Google Cloud targets telcos
    • Big commitment to submarine/long distance infrastructure
    • Key takeaways: Vertical optimisation not integration
  • Amazon: A toe in the water
    • Amazon Sidewalk
    • Amazon and CBRS
    • Amazon’s long distance infrastructure
    • Takeaways: Control over connectivity has its attractions
  • Conclusions and implications for telcos in digital commerce/content
  • Index

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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.

Table of Contents

  • 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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