Telco Cloud Deployment Tracker: 5G standalone and RAN

Telco cloud 2.0, fuelled by 5G standalone and RAN, is on the starting grid

This report accompanies the latest release and update of STL Partners ‘Telco Cloud Deployment Tracker’ database. This contains data on deployments of VNFs (Virtual Network Functions), CNFs (cloud-native network functions) and SDN (Software Defined Networking) in the networks of the leading telcos worldwide. It builds on an extensive body of analysis by STL Partners over the past nine years on NFV and SDN strategies, technology and market developments.

Access our Telco Cloud Tracker here

Download the additional file for the full dataset of Telco Cloud deployments

Scope and content of the Tracker

The data in the latest update of our interactive tool and database covers the period up to September 2021, although reference is made in the report to events and deployments after that date. The data is drawn predominantly from public-domain information contained in news releases from operators and vendors, along with reputable industry media.

We apply the term ‘deployment’ to refer to the total set of VNFs, CNFs or SDN technology, and their associated management software and infrastructure, deployed at an operator – or at one or more of an operator’s opcos or natcos – in order to achieve a defined objective or support particular services (in the spreadsheet, we designate these as the ‘primary purpose’ of the deployment). For example, this could be:

  • to deploy a 5G standalone core
  • to launch a software-defined WAN (SD-WAN) service
  • or to construct a ‘telco cloud’ or NFV infrastructure (NFVi): a cloud infrastructure platform on which virtualised network services can be introduced and operated.

The Tracker is provided as an interactive tool containing line-by-line analysis of over 900 individual deployments of VNFs, CNFs or SDN technology, which can be used to drill down by:

  • Region where deployed
  • Operator
  • Technology vendor
  • Primary purpose
  • Category of NFV/SDN technology deployed
  • …and more filters

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5G standalone (SA) will hit an inflection point in 2022

5G standalone (SA) core is beginning to take off, with 19 deployments so far expected to be completed in 2022. The eventual total will be higher still, as will that of NSA core, as NSA 5G networks continue to be launched. As non-standalone (NSA) cores are replaced by SA, this will result in another massive wave of core deployments – probably from 2023/4 onwards.

Standalone 5G vs non-standalone 5G core deployments

STL-5G-standalone-core-cloud-tracker-2021

Source: STL Partners

 

Previous telco cloud tracker releases

Each new release of the tracker is global, but is accompanied by an analytical report which focusses on trends in given regions from time to time:

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Why and how to go telco cloud native: AT&T, DISH and Rakuten

The telco business is being disaggregated

Telcos are facing a situation in which the elements that have traditionally made up and produced their core business are being ‘disaggregated’: broken up into their component parts and recombined in different ways, while some of the elements of the telco business are increasingly being provided by players from other industry verticals.

By the same token, telcos face the pressure – and the opportunity – to combine connectivity with other capabilities as part of new vertical-specific offerings.

Telco disaggregation primarily affects three interrelated aspects of the telco business:

  1. Technology:
    • ‘Vertical’ disaggregation: separating out of network functions previously delivered by dedicated, physical equipment into software running on commodity computing hardware (NFV, virtualisation)
    • ‘Horizontal’ disaggregation: breaking up of network functions themselves into their component parts – at both the software and hardware levels; and re-engineering, recombining and redistributing of those component parts (geographically and architecturally) to meet the needs of new use cases. In respect of software, this typically involves cloud-native network functions (CNFs) and containerisation
    • Open RAN is an example of both types of disaggregation: vertical disaggregation through separation of baseband processing software and hardware; and horizontal disaggregation by breaking out the baseband function into centralised and distributed units (CU and DU), along with a separate, programmable controller (RAN Intelligent Controller, or RIC), where all of these can in theory be provided by different vendors, and interface with radios that can also be provided by third-party vendors.
  2. Organisational structure and operating model: Breaking up of organisational hierarchies, departmental siloes, and waterfall development processes focused on the core connectivity business. As telcos face the need to develop new vertical- and client-specific services and use cases beyond the increasingly commoditised, low-margin connectivity business, these structures are being – or need to be – replaced by more multi-disciplinary teams taking end-to-end responsibility for product development and operations (e.g. DevOps), go-to-market, profitability, and technology.

Transformation from the vertical telco to the disaggregated telco

3. Value chain and business model: Breaking up of the traditional model whereby telcos owned – or at least had end-to-end operational oversight over – . This is not to deny that telcos have always relied on third party-owned or outsourced infrastructure and services, such as wholesale networks, interconnect services or vendor outsourcing. However, these discrete elements have always been welded into an end-to-end, network-based services offering under the auspices of the telco’s BSS and OSS. These ensured that the telco took overall responsibility for end-to-end service design, delivery, assurance and billing.

    • The theory behind this traditional model is that all the customer’s connectivity needs should be met by leveraging the end-to-end telco network / service offering. In practice, the end-to-end characteristics have not always been fully controlled or owned by the service provider.
    • In the new, further disaggregated value chain, different parts of the now more software-, IT- and cloud-based technology stack are increasingly provided by other types of player, including from other industry verticals. Telcos must compete to play within these new markets, and have no automatic right to deliver even just the connectivity elements.

All of these aspects of disaggregation can be seen as manifestations of a fundamental shift where telecoms is evolving from a utility communications and connectivity business to a component of distributed computing. The core business of telecoms is becoming the processing and delivery of distributed computing workloads, and the enablement of ubiquitous computing.

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Telco disaggregation is a by-product of computerisation

Telco industry disaggregation is part of a broader evolution in the domains of technology, business, the economy, and society. This evolution comprises ‘computerisation’. Computing analyses and breaks up material processes and systems into a set of logical and functional sub-components, enabling processes and products to be re-engineered, optimised, recombined in different ways, managed, and executed more efficiently and automatically.

In essence, ‘telco disaggregation’ is a term that describes a moment in time at which telecoms technology, organisations, value chains and processes are being broken up into their component parts and re-engineered, under the impact of computerisation and its synonyms: digitisation, softwarisation, virtualisation and cloud.

This is part of a new wave of societal computerisation / digitisation, which at STL Partners we call the Coordination Age. At a high level, this can be described as ‘cross-domain computerisation’: separating out processes, services and functions from multiple areas of technology, the economy and society – and optimising, recombining and automating them (i.e. coordinating them), so that they can better deliver on social, economic and environmental needs and goals. In other words, this enables scarce resources to be used more efficiently and sustainably in pursuit of individual and social needs.

NFV has computerised the network; telco cloud native subordinates it to computing

In respect of the telecoms industry in particular, one could argue that the first wave of virtualisation (NFV and SDN), which unfolded during the 2010s, represented the computerisation and digitisation of telecoms networking. The focus of this was internal to the telecoms industry in the first instance, rather than connected to other social and technology domains and goals. It was about taking legacy, physical networking processes and functions, and redesigning and reimplementing them in software.

Then, the second wave of virtualisation (cloud-native – which is happening now) is what enables telecoms networking to play a part in the second wave of societal computerisation more broadly (the Coordination Age). This is because the different layers and elements of telecoms networks (services, network functions and infrastructure) are redefined, instantiated in software, broken up into their component parts, redistributed (logically and physically), and reassembled as a function of an increasing variety of cross-domain and cross-vertical use cases that are enabled and delivered, ultimately, by computerisation. Telecoms is disaggregated by, subordinated to, and defined and controlled by computing.

In summary, we can say that telecoms networks and operations are going through disaggregation now because this forms part of a broader societal transformation in which physical processes, functions and systems are being brought under the control of computing / IT, in pursuit of broader human, societal, economic and environmental goals.

In practice, this also means that telcos are facing increasing competition from many new types of actor, such as:

  • Computing, IT and cloud players
  • More specialist and agile networking providers
  • And vertical-market actors – delivering connectivity in support of vertical-specific, Coordination Age use cases.

 

Table of contents

  • Executive Summary
    • Three critical success factors for Coordination Age telcos
    • What capabilities will remain distinctively ‘telco’?
    • Our take on three pioneering cloud-native telcos
  • Introduction
    • The telco business is being disaggregated
    • Telco disaggregation is a by-product of computerisation
  • The disaggregated telco landscape: Where’s the value for telcos?
    • Is there anything left that is distinctively ‘telco’?
    • The ‘core’ telecoms business has evolved from delivering ubiquitous communications to enabling ubiquitous computing
    • Six telco-specific roles for telecoms remain in play
  • Radical telco disaggregation in action: AT&T, DISH and Rakuten
    • Servco, netco or infraco – or a patchwork of all three?
    • AT&T Network Cloud sell-off: Desperation or strategic acuity?
    • DISH Networks: Building the hyperscale network
    • Rakuten Mobile: Ecommerce platform turned cloud-native telco, turned telco cloud platform provider
  • Conclusion

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O-RAN: What is it worth?

Introducing STL Partners’ O-RAN Market Forecast

This capex forecast is STL Partners’ first attempt at estimating the value of the O-RAN market.

  • This is STL Partners’ first O-RAN market value forecast
  • It is based on analysis of telco RAN capex and projected investment pathways for O-RAN
  • The assumptions are informed by public announcements, private discussions and the opinions of our Telco Cloud team
  • We look forward to developing it further based on client feedback

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What is O-RAN?

We define O-RAN as virtualised, disaggregated, open-interface architectures.

  • Our O-RAN capex forecasts cover virtualised, disaggregated, open-interface architectures in the Radio Access Network
  • They do not include vRAN or O-RAN compliant but single vendor deployments

O-RAN definition open RAN

O-RAN will account for 76% of active RAN capex by 2030

As mobile operators upgrade their 4G networks and invest in new 5G infrastructure, they can continue purchasing single vendor legacy RAN equipment or opt for multi-vendor open-standard O-RAN solutions.

Each telco will determine its O-RAN roadmap based on its specific circumstances (footprint, network evolution, rural coverage, regulatory pressure, etc)1. For the purpose of this top-level O-RAN capex forecast, STL has defined four broad pathways for transitioning from legacy RAN/vRAN to O-RAN and categorised each of the top 40 mobile operators in one of the pathways, based on their announced or suspected O-RAN strategy.

Through telcos’ projected mobile capex and the pathway categorisation, we estimate that by 2026 annual sales of O-RAN active network elements (including equipment and software) will reach USD12 billion, or 21% of all active RAN capex (excluding passive infrastructure). By 2030, these will reach USD43 billion and 76%, respectively.

Total annual O-RAN capex spend

Table of content

  • Executive summary
    • O-RAN forecast 2020-2030
    • Brownfield vs greenfield
    • Four migration pathways
  • Modelling assumptions
  • Migration pathways
    • Committed O-RAN-philes
    • NEP-otists
    • Leap-froggers
    • Industrial O-RAN
  • Next steps

 

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2020 in review and focus on North America: How should telcos do cloud?

Tenth update of the Telco Cloud Tracker

This report accompanies the tenth release of STL Partners’ ‘Telco Cloud Tracker’ database. This contains data on deployments of NFV (Network Functions Virtualisation), SDN (Software Defined Networking) and cloud-native network functions (CNFs) in the networks of the leading telcos worldwide. This analytical report focuses on trends in North America, set in global context.

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Scope and content of the Tracker

The data in the tenth update covers the period up to the end of January 2021, although reference is made in the report to events and deployments after that date. The data is drawn predominantly from public-domain information contained in news releases from operators and vendors, along with reputable industry media. However, it also includes a smaller set of deployment data disclosed to us confidentially by operators and vendors. This information is added to the aggregate data sections of the ‘Tracker’ spreadsheet, which do not refer to the specific solutions supplied or the operators where they were deployed.

We apply the term ‘deployment’ to refer to the total set of virtual network functions (VNFs), CNFs or SDN technology, and their associated management software and infrastructure, deployed at an operator – or at one or more of an operator’s opcos or natcos – in order to achieve a defined objective or support particular services (in the spreadsheet, we designate these as the ‘primary purpose’ of the deployment). For example, this could be:

  • to implement a virtualised mobile core
  • to launch a software-defined WAN (SD-WAN) service
  • or to construct a ‘telco cloud’ or NFV infrastructure (NFVi): a cloud infrastructure platform on which virtualised network services can be introduced and operated.

Accordingly, some of the deployments contained in the database comprise multiple elements, which are listed separately, including details about the category of NFV / SDN / CNF, and vendor and product name where known.

In addition to these mainly public-domain deployments, there are many non-publicised deployments that are inevitably omitted from the ‘Tracker’. However, the ever-growing ‘Tracker’ database now constitutes a considerable body of research that in our view offers a reliable snapshot of the overall market and the main trends in the evolution of telco cloud. In addition, as the ‘Tracker’ contains details only of deployments in live, commercial telco networks (either completed or in progress), this provides a useful corrective to the hype of some vendors’ pronouncements about agreements with operators, which often relate only to collaboration arrangements and preliminary trials, rather than commercial roll-outs.

The one exception to this rule of including only deployments that are implemented to support commercial services is a limited set of data on some of the current live network trials of open and / or virtual RAN (vRAN). The reason for making this exception is the very high level of interest currently in open RAN.

In terms of the telcos included, we limit the database mainly to Tier-One international and national telecoms operators, along with national fixed and mobile operators in smaller markets. For subsequent updates, we may expand the range and types of service providers included, because telco cloud is opening up opportunities for new players to provide cloud- and CNF-based connectivity and related services that are competing strongly with classic telco services.

SD-WAN in focus

In this update of the Tracker we have included a deep dive on SD-WAN, which was one of the main early drivers of SDN/NFV deployments, particularly among North American operators. It is worth exploring in more detail because, as it evolves into an increasingly cloud-centric and cloud-native service, it is emerging as another battleground between operators, hyperscalers and vendors.

5G is driving deployments – but will it drive business model change?

This is the first update to the ‘Telco Cloud Tracker’ in 2021, which provides an opportunity to review 2020 and discuss the key trends in 2021.

Despite the global pandemic, the pace of virtualised network function (VNF) deployments has continued at a strong level.

Total deployments by region, 2016 to 2021

Our projection is that the final number of deployments in 2020 will be at around the same level as 2019 (182 in total). Many live deployments are confirmed some time after the event, swelling the totals for previous years. Accordingly, some of the deployments currently recorded as ‘in progress’ will be added to the tally for 2020.

5G core dominates the scene but is done largely via single-vendor, ‘vertical’ NFV

The main driver of deployments in 2020 was 5G network launches around the world, particularly in the second half of the year. This meant that many Non-standalone (NSA) 5G cores – the platform supporting almost all live 5G networks – also went live, as is illustrated below:

 Deployments by leading network function, 2016 to 2021

We recorded 76 completed deployments of NSA cores in 2020, up from 56 in 2019. A further ten deployments were either completed or pending in the first quarter of 2021.

Table of content

  • Executive Summary
    • 5G core drives deployments
    • SD-WAN: Telco value moves from the WAN to the edge
    • The industry is facing an existential question: How should telcos do cloud?
    • Conclusion from North America analysis: Can a brownfield MNO be more cloud-native than a greenfield one?
  • Introduction
    • Tenth update of the Telco Cloud Tracker
    • Scope and content of the Tracker
    • SD-WAN in focus
  • 5G is driving deployments – but will it drive business model change?
    • 5G core dominates the scene but is done largely via single-vendor, ‘vertical’ NFV
    • The industry faces an existential question: how should telcos do cloud?
    • Focus on North America: four divergent answers to the existential question
  • SD-WAN: While WAN moves to the cloud, new software-defined value migrates to the edge
    • SD-WAN was one of the success stories of the first phase of SDN / NFV
    • SD-WAN has been largely made in America
    • Changes accelerated by Covid favour SD-WAN vendors over telcos – but telcos retain strengths in key areas
    • Main opportunities currently for telcos in SD-WAN, and challenge from vendors
    • ‘SD’ moves towards the edge, while ‘WAN’ moves to the cloud
  • Conclusion: Can a brownfield MNO be more cloud-native than a greenfield one?

 

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The Telco Cloud Manifesto

Telco cloud: A key enabler of the Coordination Age

The Coordination Age is coming

As we have set out in our company manifesto, STL Partners believes that we are entering a new ‘Coordination Age’ in which technological developments will enable governments, enterprises, and consumers to coordinate their activities more effectively than ever before. The results of better and faster coordination will be game-changing for society as resources are distributed and used more effectively than ever before leading to substantial social, economic, and health benefits.

A critical component of the Coordination Age is the universal availability of flexible, fast, reliable, low-latency networks that support a myriad of applications which, in turn, enable a complex array of communications, decisions, transactions, and processes to be completed quickly and, in many cases, automatically without human intervention.  The network remains key: without it being fit for purpose the ability to match demand and supply real-time is impossible.

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How telecoms can define a new role

Historically, telecoms networks have been created using specialist dedicated (proprietary) hardware and software.  This has ensured networks are reliable and secure but has also stymied innovation – from operators and from third-parties – that have found leveraging network capabilities challenging.  In fact, innovation accelerated with the arrival of the Internet which enabled services to be decoupled from the network and run ‘over the top’.

But the Coordination Age requires more from the network than ever before – applications require the network to be flexible, accessible and support a range of technical and commercial options. Applications cannot run independently of the network but need to integrate with it. The network must be able to impart actionable insights and flex its speed, bandwidth, latency, security, business model and countless other variables quickly and autonomously to meet the needs of applications using it.

Telco cloud – the move to a network built on common off-the-shelf hardware and flexible interoperable software from best-of-breed suppliers that runs wherever it is needed – is the enabler of this future.

 

Table of Contents

  • Executive Summary
  • Telco cloud: A key enabler of the Coordination Age
    • The Coordination Age is coming
    • How telecoms can define a new role
  • Telco cloud: The growth enabler for the telecoms industry
    • Telecoms revenue growth has stalled, traffic has not
    • Telco cloud: A new approach to the network
    • …a fundamental shift in what it means to be an operator
    • …and the driver of future telecoms differentiation and growth
  • Realising the telco cloud vision
    • Moving to telco cloud is challenging
    • Different operator segments will take different paths

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Telecoms priorities: Ready for the crunch?

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

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

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

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

Background to the telecoms priorities survey – January 2021

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

Who took the survey?

telco industry breakdown

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

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

What are their roles?

Senior participants

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

How respondents perceive priorities, as the COVID threat recedes

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

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

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

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

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Notes on interpreting the research findings

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

Table of contents

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

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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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Telco Cloud Europe update: Open RAN approaching tipping point

Telco Cloud deployments on track for growth again in 2020

Ninth update of the ‘Telco Cloud Tracker’: from ‘NFV’ to ‘telco cloud’

This report accompanies the ninth release of STL Partners’ ‘Telco Cloud Tracker’ database. This contains data on deployments of NFV (Network Functions Virtualisation), SDN (Software Defined Networking) and cloud-native network functions (CNFs) in the networks of the leading telcos worldwide. This analytical report focuses on trends in Europe, set in global context.

For this update and hereafter, we have changed the name of the database from ‘NFV Deployment Tracker’ to ‘Telco Cloud Tracker’. The name change reflects STL Partners’ new focus on ‘Telco Cloud’ as both a research stream and consultancy practice. But the change also corresponds to the fact that the telecoms industry has now embarked on the second phase of its journey towards more integrally software-based networks – the first phase of which went under the banner of ‘NFV’. This journey is not just about a migration towards ‘software in general’, but cloud-native software: based on design principles developed by the cloud industry, which have the potential to bring cloud-scale economics, programmability and automation to connectivity and connectivity-dependent services.

The Tracker database is provided as an interactive Excel tool containing line-by-line analysis of more than 760 individual deployments of NFV, SDN and CNFs, which can be used to drill down on trends by company and region.

We will produce further research and reports on different aspects of cloud-native software and its impact over the coming months.

Growth in 5G core offset by declines in other areas

Telco cloud deployments so far

After a slight drop in the overall number of deployments in 2019, 2020 is set to be a year of modest growth, as is illustrated by the figure below:

Total number of deployments worldwide, 2014 to July 2020

Source: STL Partners

The data for 2020 is split up into completed, ‘pending’ and estimated additional deployments. We have recorded 63 completed deployments between January and July 2020. Pending deployments (totalling 72) are those previously announced that we are expecting to be completed during 2020 but which – to our knowledge – had not yet gone live in the commercial network by the end of July. The estimated additional deployments are derived from extrapolating to the full year 2020 from the total of completed implementations in the first seven months. This results in around 45 further deployments. On this basis, the total for the year as a whole would reach around 180 deployments: just above the previous record year of 2018 (178).

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Table of Contents

  • Executive Summary
  • Introduction: Telco cloud deployments on track for growth again in 2020
    • Ninth update of the ‘Telco Cloud Tracker’: from ‘NFV’ to ‘telco cloud’
    • Scope and content of the Tracker
  • 5G core drives new growth in 2020
    • Deployments are on the rise again
    • Growth has been consistent across almost all regions
    • Europe also on track to maintain its record of year-on-year growth
    • Deployments in Europe are still dominated by the major players, but smaller telcos are catching up
    • Vendors: Ericsson in close second place behind Cisco owing to strong presence in mobile core
  • Open RAN at a TIPping point in Europe
    • European telcos are playing a leading role in open RAN
  • Conclusion: Growth being driven by 5G – with open RAN waiting in the wings
    • Worldwide surge in NSA 5G core deployments
    • NSA 5GC is now nearly the leading VNF overall in Europe
    • … with cloud-native, SA 5GC coming down the pipeline
    • … and waiting in the wings: open RAN
    • These overlapping waves of innovation will make telco cloud mainstream

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Building telco edge infrastructure: MEC, Private LTE & VRAN

Reality check: edge computing is not yet mature, and much is still to be decided

Edge computing is still a maturing domain. STL Partners has written extensively on the topic of edge computing over the last 4 years. Within that timeframe, we have seen significant change in terminology, attitudes and approaches from telecoms and adjacent industries to the topic area.  Plans for building telco edge infrastructure have also evolved.

Within the past twelve months, we’ve seen high profile partnerships between hyperscale cloud providers (Amazon Web Services, Microsoft and Google) and telecoms operators that are likely to catalyse the industry and accelerate route to market. We’ve also seen early movers within the industry (such as SK Telecom) developing MEC platforms to enable access to their edge infrastructure.

In the course of this report, we will highlight which domains will drive early adoption for edge, and the potential roll out we could see over the next 5 years if operators move to capitalise on the opportunity. However, to start, it is important to evaluate the situation today.

Commercial deployments of edge computing are rare, and most operators are still in the exploration phase. For many, they have not and will not commit to the roll out of edge infrastructure until they have seen evidence from early movers that it is a genuine opportunity for the industry. For even more, the idea of additional capex investment on edge infrastructure, on top of their 5G rollout plans, is a difficult commitment to make.

Where is “the edge”?

There is no one clear definition of edge computing. Depending on the world you are coming from (Telco? Application developer? Data centre operator? Cloud provider? etc.), you are likely to define it differently. In practice, we know that even within these organisations there are differences between technical and commercial teams around the concept and terminology used to describe “the edge”.

For the purposes on this paper, we will be discussing edge computing primarily from the perspective of a telecoms operator. As such, we’ll be focusing on edge infrastructure that will be rolled out within their network infrastructure or that they will play a role in connecting. This may equate to adding additional servers into an existing technical space (such as a Central Office), or it may mean investing in new microdata centres. The servers may be bought, installed and managed by the telco themselves, or this could be done by a third party, but in all cases the real estate (e.g. the physical location as well as power and cooling) is owned either by the telecoms operator, or by the enterprise who is buying an edge-enabled solution.

Operators have choice and a range of options for where and how they might develop edge computing sites. The graphic below starts to map some of the potential physical locations for an edge site. In this report, STL Partners forecasts edge infrastructure deployments between 2020 and 2024, by type of operator, use-case domains, edge locations and type of computing.

There is a spectrum of edge infrastructure in which telcos may invest

mapping edge infrastructure investmentSource: STL Partners

This paper primarily draws on discussions with operators and others within the edge ecosystem conducted between February and March 2020. We interviewed a range of operators, and a range of job roles within them, to gain a snapshot of the existing attitudes and ambitions within the industry to shape our understanding of how telcos are likely to build out edge infrastructure.

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Table of Contents

  • Executive Summary
  • Preface
  • Reality check: edge computing is not yet mature, and much is still to be decided
    • Reality #1: Organisationally, operators are still divided
    • Reality #2: The edge ecosystem is evolving fast
    • Reality #3: Operators are trying to predict, respond to and figure out what the “new normal” will be post COVID-19
  • Edge computing: key terms and definitions
    • Where is “the edge”?
    • What applications & use cases will run at edge sites?
    • What is inside a telco edge site?
  • How edge will play out: 5-year evolution
    • Modelling exercise: converting hype into numbers
    • Our findings: edge deployments won’t be very “edgy” in 2024
    • Short-term adoption of vRAN is the driving factor
    • New revenues from MEC remain a longer-term opportunity
    • Short-term adoption is focused on efficient operations, but revenue opportunity has not been dismissed
  • Addressing the edge opportunity: operators can be more than infrastructure providers
  • Conclusions: practical recommendations for operators

COVID-19: Impact on telco priorities

The goal of this research is to understand how telecoms operators’ investment priorities and investments are likely to change in response to COVID-19.  To do this, we collected more than 200 survey responses from participants in telecoms operators, telecoms vendors, and analysts and consultants and other groups. All responses are treated in strict personal and company confidence. Take the survey here.

This research builds on our initial research on the impact of the pandemic to the telecoms industry, COVID-19: Now, next and after, published in March 2020.

Background to the telco COVID-19 survey

The respondents were fairly evenly split between telcos, vendors, and ‘others’ (mainly analysts and consultants). This sample contained a higher proportion of European and American respondents than industry average, so is not fully globally representative. We have drawn out regional comparisons where possible.

Who took the survey?

COVID-19 survey respondents by company and region

Source: STL COVID-19 survey, 202 respondents, May 8th 2020

Meanwhile, 44% of respondents were C-Level/VP/SVP/Director level. Functionally, most respondents work in senior HQ and operational management areas.

What are their roles?

COVID-19 survey respondents by seniority

Source: STL COVID-19 survey, 202 respondents, May 8th 2020

How respondents perceive the risks from COVID-19

Respondents were positive on the prospects for most areas overall. We have taken a slightly more pessimistic view in our analysis of the survey results and the categorisation below to balance this bias and factor in future economic risk.

While not all activities we have categorised as “at risk” will necessarily be delayed, we believe that in some telcos there may be more pressure in these areas if the financial impact of COVID-19 is harsher than expected at the time of the survey. We expect that when Q2 results come out, many operators will have a clearer view of how the crisis will affect them financially – and those that are ahead of the curve in adopting technologies such as automation will be in a good position to accelerate their impact, those that are behind the curve may face a more difficult uphill battle.

A relative view of how respondents perceived the outlook for telcos in different business areas and verticals

COVID-19 survey perceived risks to business

Source: STL Partners analysis of COVID-19 survey, 202 respondents, May 8th 2020

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Notes on the research findings

  • The way research respondents perceive any given question is generally dependent on their current situation and knowledge. To get relevant answers, we asked all respondents if they were interested or involved in specific areas of interest (e.g. ‘consumer services’), and to not answer questions they couldn’t (e.g. for confidentiality reasons) or simply didn’t know or have a clear opinion.
  • We saw no evidence that respondents were ‘gaming’ the results to be favourable to their interests.
  • Results need to be seen in the context that telcos themselves vary widely in size, profitability and market outlook. For example, for some, 5G seems like a valid investment, whereas for others the conditions are currently much less promising. COVID-19 has clearly had some impact on these dynamics, and our analysis attempts to reflect this impact on the overall balance of opinions as well as some of the specific situations to bring greater nuance.
  • As of mid May 2020, the total economic impact of COVID-19 was probably less clear to the majority of the respondents than the operational and lifestyle changes it has brought. It is therefore likely that as telco results for Q2 start to be circulated, and before then internally to the telcos, differing pressures will arise than that existed at the time of this survey. The resulting intentions may therefore become more or less extreme than shown in this research, though the relative positions of different activities in the various maps of risk and opportunity may change less than the absolute levels shown here.
  • We’ve interpreted the results as best we can given our knowledge of the respondents and what they told us, and added in our own insights where relevant.
  • Inevitably, this is a subjective exercise, albeit based on 200+ industry respondents’ views.
  • Nonetheless, we hope that it brings you additional insights to the many that you already possess through your own experiences and access to data.
  • Finally, things continue to change fast. We will continue to track them.

Table of contents

  • Executive summary: What’s most likely to change?
  • Research background
  • Technology impacts: Implementing automation, cloud and edge
  • Network impacts: Making sense of divergent 5G viewpoints
  • Enterprise sector impacts: Healthcare and consumerisation
  • Consumer sector impacts: What will last?
  • Leadership impacts: Building on new foundations
  • What next?

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Open RAN: What should telcos do?

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Related webinar: Open RAN: What should telcos do?

In this webinar STL Partners addressed the three most important sub-components of Open RAN (open-RAN, vRAN and C-RAN) and how they interact to enable a new, virtualized, less vendor-dominated RAN ecosystem. The webinar covered:

* Why Open RAN matters – and why it will be about 4G (not 5G) in the short term
* Data-led overview of existing Open RAN initiatives and challenges
* Our recommended deployment strategies for operators
* What the vendors are up to – and how we expect that to change

Date: Tuesday 4th August 2020
Time: 4pm GMT

Access the video recording and presentation slides

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For the report chart pack download the additional file on the left

What is the open RAN and why does it matter?

The open RAN’ encompasses a group of technological approaches that are designed to make the radio access network (RAN) more cost effective and flexible. It involves a shift away from traditional, proprietary radio hardware and network architectures, driven by single vendors, towards new, virtualised platforms and a more open vendor ecosystem.

Legacy RAN: single-vendor and inflexible

The traditional, legacy radio access network (RAN) uses dedicated hardware to deliver the baseband function (modulation and management of the frequency range used for cellular network transmission), along with proprietary interfaces (typically based on the Common Public Radio Interface (CPRI) standard) for the fronthaul from the baseband unit (BBU) to the remote radio unit (RRU) at the top of the transmitter mast.

Figure 1: Legacy RAN architecture

Source: STL Partners

This means that, typically, telcos have needed to buy the baseband and the radio from a single vendor, with the market presently dominated largely by the ‘big three’ (Ericsson, Huawei and Nokia), together with a smaller market share for Samsung and ZTE.

The architecture of the legacy RAN – with BBUs typically but not always at every cell site – has many limitations:

  • It is resource-intensive and energy-inefficient – employing a mass of redundant equipment operating at well below capacity most of the time, while consuming a lot of power
  • It is expensive, as telcos are obliged to purchase and operate a large inventory of physical kit from a limited number of suppliers, which keeps the prices high
  • It is inflexible, as telcos are unable to deploy to new and varied sites – e.g. macro-cells, small cells and micro-cells with different radios and frequency ranges – in an agile and cost-effective manner
  • It is more costly to manage and maintain, as there is less automation and more physical kit to support, requiring personnel to be sent out to remote sites
  • It is not very programmable to support the varied frequency, latency and bandwidth demands of different services.

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Moving to the open RAN: C-RAN, vRAN and open-RAN

There are now many distinct technologies and standards emerging in the radio access space that involve a shift away from traditional, proprietary radio hardware and network architectures, driven by single vendors, towards new, virtualised platforms and a more open vendor ecosystem.

We have adopted ‘the open RAN’ as an umbrella term which encompasses all of these technologies. Together, they are expected to make the RAN more cost effective and flexible. The three most important sub-components of the open RAN are C-RAN, vRAN and open-RAN.

Centralised RAN (C-RAN), also known as cloud RAN, involves distributing and centralising the baseband functionality across different telco edge, aggregation and core locations, and in the telco cloud, so that baseband processing for multiple sites can be carried out in different locations, nearer or further to the end user.

This enables more effective control and programming of capacity, latency, spectrum usage and service quality, including in support of 5G core-enabled technologies and services such as network slicing, URLLC, etc. In particular, baseband functionality can be split between more centralised sites (central baseband units – CU) and more distributed sites (distributed unit – DU) in much the same way, and for a similar purpose, as the split between centralised control planes and distributed user planes in the mobile core, as illustrated below:

Figure 2: Centralised RAN (C-RAN) architecture

Cloud RAN architecture

Source: STL Partners

Virtual RAN (vRAN) involves virtualising (and now also containerising) the BBU so that it is run as software on generic hardware (General Purpose Processing – GPP) platforms. This enables the baseband software and hardware, and even different components of them, to be supplied by different vendors.

Figure 3: Virtual RAN (vRAN) architecture

vRAN architecture

Source: STL Partners

Open-RANnote the hyphenation – involves replacing the vendor-proprietary interfaces between the BBU and the RRU with open standards. This enables BBUs (and parts thereof) from one or multiple vendors to interoperate with radios from other vendors, resulting in a fully disaggregated RAN:

Figure 4: Open-RAN architecture

Open-RAN architecture

Source: STL Partners

 

RAN terminology: clearing up confusion

You will have noticed that the technologies above have similar-sounding names and overlapping definitions. To add to potential confusion, they are often deployed together.

Figure 5: The open RAN Venn – How C-RAN, vRAN and open-RAN fit together

Open-RAN venn: open-RAN inside vRAN inside C-RAN

Source: STL Partners

As the above diagram illustrates, all forms of the open RAN involve C-RAN, but only a subset of C-RAN involves virtualisation of the baseband function (vRAN); and only a subset of vRAN involves disaggregation of the BBU and RRU (open-RAN).

To help eliminate ambiguity we are adopting the typographical convention ‘open-RAN’ to convey the narrower meaning: disaggregation of the BBU and RRU facilitated by open interfaces. Similarly, where we are dealing with deployments or architectures that involve vRAN and / or cloud RAN but not open-RAN in the narrower sense, we refer to those examples as ‘vRAN’ or ‘C-RAN’ as appropriate.

In the coming pages, we will investigate why open RAN matters, what telcos are doing about it – and what they should do next.

Table of contents

  • Executive summary
  • What is the open RAN and why does it matter?
    • Legacy RAN: single-vendor and inflexible
    • The open RAN: disaggregated and flexible
    • Terminology, initiatives & standards: clearing up confusion
  • What are the opportunities for open RAN?
    • Deployment in macro networks
    • Deployment in greenfield networks
    • Deployment in geographically-dispersed/under-served areas
    • Deployment to support consolidation of radio generations
    • Deployment to support capacity and coverage build-out
    • Deployment to support private and neutral host networks
  • How have operators deployed open RAN?
    • What are the operators doing?
    • How successful have deployments been?
  • How are vendors approaching open RAN?
    • Challenger RAN vendors: pushing for a revolution
    • Incumbent RAN vendors: resisting the open RAN
    • Are incumbent vendors taking the right approach?
  • How should operators do open RAN?
    • Step 1: Define the roadmap
    • Step 2: Implement
    • Step 3: Measure success
  • Conclusions
    • What next?

5G: Bridging hype, reality and future promises

The 5G situation seems paradoxical

People in China and South Korea are buying 5G phones by the million, far more than initially expected, yet many western telcos are moving cautiously. Will your company also find demand? What’s the smart strategy while uncertainty remains? What actions are needed to lead in the 5G era? What questions must be answered?

New data requires new thinking. STL Partners 5G strategies: Lessons from the early movers presented the situation in late 2019, and in What will make or break 5G growth? we outlined the key drivers and inhibitors for 5G growth. This follow on report addresses what needs to happen next.

The report is informed by talks with executives of over three dozen companies and email contacts with many more, including 21 of the first 24 telcos who have deployed. This report covers considerations for the next three years (2020–2023) based on what we know today.

“Seize the 5G opportunity” says Ke Ruiwen, Chairman, China Telecom, and Chinese reports claimed 14 million sales by the end of 2019. Korea announced two million subscribers in July 2019 and by December 2019 approached five million. By early 2020, The Korean carriers were confident 30% of the market will be using 5G by the end of 2020. In the US, Verizon is selling 5G phones even in areas without 5G services,  With nine phone makers looking for market share, the price in China is US$285–$500 and falling, so the handset price barrier seems to be coming down fast.

Yet in many other markets, operators progress is significantly more tentative. So what is going on, and what should you do about it?

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5G technology works OK

22 of the first 24 operators to deploy are using mid-band radio frequencies.

Vodafone UK claims “5G will work at average speeds of 150–200 Mbps.” Speeds are typically 100 to 500 Mbps, rarely a gigabit. Latency is about 30 milliseconds, only about a third better than decent 4G. Mid-band reach is excellent. Sprint has demonstrated that simply upgrading existing base stations can provide substantial coverage.

5G has a draft business case now: people want to buy 5G phones. New use cases are mostly years away but the prospect of better mobile broadband is winning customers. The costs of radios, backhaul, and core are falling as five system vendors – Ericsson, Huawei, Nokia, Samsung, and ZTE – fight for market share. They’ve shipped over 600,000 radios. Many newcomers are gaining traction, for example Altiostar won a large contract from Rakuten and Mavenir is in trials with DT.

The high cost of 5G networks is an outdated myth. DT, Orange, Verizon, and AT&T are building 5G while cutting or keeping capex flat. Sprint’s results suggest a smart build can quickly reach half the country without a large increase in capital spending. Instead, the issue for operators is that it requires new spending with uncertain returns.

The technology works, mostly. Mid-band is performing as expected, with typical speeds of 100–500Mbps outdoors, though indoor performance is less clear yet. mmWave indoor is badly degraded. Some SDN, NFV, and other tools for automation have reached the field. However, 5G upstream is in limited use. Many carriers are combining 5G downstream with 4G upstream for now. However, each base station currently requires much more power than 4G bases, which leads to high opex. Dynamic spectrum sharing, which allows 5G to share unneeded 4G spectrum, is still in test. Many features of SDN and NFV are not yet ready.

So what should companies do? The next sections review go-to-market lessons, status on forward-looking applications, and technical considerations.

Early go-to-market lessons

Don’t oversell 5G

The continuing publicity for 5G is proving powerful, but variable. Because some customers are already convinced they want 5G, marketing and advertising do not always need to emphasise the value of 5G. For those customers, make clear why your company’s offering is the best compared to rivals’. However, the draw of 5G is not universal. Many remain sceptical, especially if their past experience with 4G has been lacklustre. They – and also a minority swayed by alarmist anti-5G rhetoric – will need far more nuanced and persuasive marketing.

Operators should be wary of overclaiming. 5G speed, although impressive, currently has few practical applications that don’t already work well over decent 4G. Fixed home broadband is a possible exception here. As the objective advantages of 5G in the near future are likely to be limited, operators should not hype features that are unrealistic today, no matter how glamorous. If you don’t have concrete selling propositions, do image advertising or use happy customer testimonials.

Table of Contents

  • Executive Summary
  • Introduction
    • 5G technology works OK
  • Early go-to-market lessons
    • Don’t oversell 5G
    • Price to match the experience
    • Deliver a valuable product
    • Concerns about new competition
    • Prepare for possible demand increases
    • The interdependencies of edge and 5G
  • Potential new applications
    • Large now and likely to grow in the 5G era
    • Near-term applications with possible major impact for 5G
    • Mid- and long-term 5G demand drivers
  • Technology choices, in summary
    • Backhaul and transport networks
    • When will 5G SA cores be needed (or available)?
    • 5G security? Nothing is perfect
    • Telco cloud: NFV, SDN, cloud native cores, and beyond
    • AI and automation in 5G
    • Power and heat

Telco Cloud: Why it hasn’t delivered, and what must change for 5G

Related Webinar – 5G Telco Clouds: Where we are and where we are headed

This research report will be expanded upon on our upcoming webinar 5G Telco Clouds: Where we are and where we are headed. In this webinar we will argue that 5G will only pay if telcos find a way to make telco clouds work. We will look to address the following key questions:

  • Why have telcos struggled to realise the telco cloud promise?
  • What do telcos need to do to unlock the key benefits?
  • Why is now the time for telcos to try again?

Join us on April 8th 16:00 – 17:00 GMT by using this registration link.

Telco cloud: big promises, undelivered

A network running in the cloud

Back in the early 2010s, the idea that a telecoms operator could run its network in the cloud was earth-shattering. Telecoms networks were complicated and highly-bespoke, and therefore expensive to build, and operate. What if we could find a way to run networks on common, shared resources – like the cloud computing companies do with IT applications? This would be beneficial in a whole host of ways, mostly related to flexibility and efficiency. The industry was sold.

In 2012, ETSI started the ball rolling when it unveiled the Network Functions Virtualisation (NFV) whitepaper, which borrowed the IT world’s concept of server-virtualisation and gave it a networking spin. Network functions would cease to be tied to dedicated pieces of equipment, and instead would run inside “virtual machines” (VMs) hosted on generic computing equipment. In essence, network functions would become software apps, known as virtual network functions (VNFs).

Because the software (the VNF) is not tied to hardware, operators would have much more flexibility over how their network is deployed. As long as we figure out a suitable way to control and configure the apps, we should be able to scale deployments up and down to meet requirements at a given time. And as long as we have enough high-volume servers, switches and storage devices connected together, it’s as simple as spinning up a new instance of the VNF – much simpler than before, when we needed to procure and deploy dedicated pieces of equipment with hefty price tags attached.

An additional benefit of moving to a software model is that operators have a far greater degree of control than before over where network functions physically reside. NFV infrastructure can directly replace old-school networking equipment in the operator’s central offices and points of presence, but the software can in theory run anywhere – in the operator’s private centralised data centre, in a datacentre managed by someone else, or even in a public hyperscale cloud. With a bit of re-engineering, it would be possible to distribute resources throughout a network, perhaps placing traffic-intensive user functions in a hub closer to the user, so that less traffic needs to go back and forth to the central control point. The key is that operators are free to choose, and shift workloads around, dependent on what they need to achieve.

The telco cloud promise

Somewhere along the way, we began talking about the telco cloud. This is a term that means many things to many people. At its most basic level, it refers specifically to the data centre resources supporting a carrier-grade telecoms network: hardware and software infrastructure, with NFV as the underlying technology. But over time, the term has started to also be associated with cloud business practices – that is to say, the innovation-focussed business model of successful cloud computing companies

Figure 2: Telco cloud defined: New technology and new ways of working

Telco cloud: Virtualised & programmable infrastructure together with cloud business practices

Source: STL Partners

In this model, telco infrastructure becomes a flexible technology platform which can be leveraged to enable new ways of working across an operator’s business. Operations become easier to automate. Product development and testing becomes more straightforward – and can happen more quickly than before. With less need for high capital spend on equipment, there is more potential for shorter, success-based funding cycles which promote innovation.

Much has been written about the vast potential of such a telco cloud, by analysts and marketers alike. Indeed, STL Partners has been partial to the same. For this reason, we will avoid a thorough investigation here. Instead, we will use a simplified framework which covers the four major buckets of value which telco cloud is supposed to help us unlock:

Figure 3: The telco cloud promise: Major buckets of value to be unlocked

Four buckets of value from telco cloud: Openness; Flexibility, visibility & control; Performance at scale; Agile service introduction

Source: STL Partners

These four buckets cover the most commonly-cited expectations of telcos moving to the cloud. Swallowed within them all, to some extent, is a fifth expectation: cost savings, which have been promised as a side-effect. These expectations have their origin in what the analyst and vendor community has promised – and so, in theory, they should be realistic and achievable.

The less-exciting reality

At STL Partners, we track the progress of telco cloud primarily through our NFV Deployment Tracker, a comprehensive database of live deployments of telco cloud technologies (NFV, SDN and beyond) in telecoms networks across the planet. The emphasis is on live rather than those running in testbeds or as proofs of concept, since we believe this is a fairer reflection of how mature the industry really is in this regard.

What we find is that, after a slow start, telcos have really taken to telco cloud since 2017, where we have seen a surge in deployments:

Figure 4: Total live deployments of telco cloud technology, 2015-2019
Includes NFVi, VNF, SDN deployments running in live production networks, globally

Telco cloud deployments have risen substantially over the past few years

Source: STL Partners NFV Deployment Tracker

All of the major operator groups around the world are now running telco clouds, as well as a significant long tail of smaller players. As we have explained previously, the primary driving force in that surge has been the move to virtualise mobile core networks in response to data traffic growth, and in preparation for roll-out of 5G networks. To date, most of it is based on NFV: taking existing physical core network functions (components of the Evolved Packet Core or the IP Multimedia Subsystem, in most cases) and running them in virtual machines. No operator has completely decommissioned legacy network infrastructure, but in many cases these deployments are already very ambitious, supporting 50% or more of a mobile operator’s total network traffic.

Yet, despite a surge in deployments, operators we work with are increasingly frustrated in the results. The technology works, but we are a long way from unlocking the value promised in Figure 2. Solutions to date are far from open and vendor-neutral. The ability to monitor, optimise and modify systems is far from ubiquitous. Performance is acceptable, but nothing to write home about, and not yet proven at mass scale. Examples of truly innovative services built on telco cloud platforms are few and far between.

We are continually asked: will telco cloud really deliver? And what needs to change for that to happen?

The problem: flawed approaches to deployment

Learning from those on the front line

The STL Partners hypothesis is that telco cloud, in and of itself, is not the problem. From a theoretical standpoint, there is no reason that virtualised and programmable network and IT infrastructure cannot be a platform for delivering the telco cloud promise. Instead, we believe that the reason it has not yet delivered is linked to how the technology has been deployed, both in terms of the technical architecture, and how the telco has organised itself to operate it.

To test this hypothesis, we conducted primary research with fifteen telecoms operators at different stages in their telco cloud journey. We asked them about their deployments to date, how they have been delivered, the challenges encountered, how successful they have been, and how they see things unfolding in the future.

Our sample includes individuals leading telco cloud deployment at a range of mobile, fixed and converged network operators of all shapes and sizes, and in all regions of the world. Titles vary widely, but include Chief Technology Officers, Heads of Technology Exploration and Chief Network Architects. Our criteria were that individuals needed to be knee-deep in their organisation’s NFV deployments, not just from a strategic standpoint, but also close to the operational complexities of making it happen.

What we found is that most telco cloud deployments to date fall into two categories, driven by the operator’s starting point in making the decision to proceed:

Figure 5: Two starting points for deploying telco cloud

Function-first "we need to virtualise XYZ" vs platform-first "we want to build a cloud platform"

Source: STL Partners

The operators we spoke to were split between these two camps. What we found is that the starting points greatly affect how the technology is deployed. In the coming pages, we will explain both in more detail.

Table of contents

  • Executive Summary
  • Telco cloud: big promises, undelivered
    • A network running in the cloud
    • The telco cloud promise
    • The less-exciting reality
  • The problem: flawed approaches to deployment
    • Learning from those on the front line
    • A function-first approach to telco cloud
    • A platform-first approach to telco cloud
  • The solution: change, collaboration and integration
    • Multi-vendor telco cloud is preferred
    • The internal transformation problem
    • The need to foster collaboration and integration
    • Standards versus blueprints
    • Insufficient management and orchestration solutions
    • Vendor partnerships and pre-integration
  • Conclusions: A better telco cloud is possible, and 5G makes it an urgent priority

Making big beautiful: Multinational operators need the telco cloud

Telcos’ (economies of) scale in perspective

As a result of their wide regional or global footprints, multi-country operators typically generate tens of billions of USD in revenues. By this measure, telcos’ scale (as defined by their revenues) is indeed comparable with the likes of Google and Facebook (see Figure 2). However, we can consider scale through a different lens as well: defined by the number of users, it becomes evident that telcos are dwarfed relative to the large internet companies. When considering the number of users, the telecoms industry is more fragmented than the internet sector – resulting in the unfavourable comparison, since no one telco can achieve a similar customer-base.

The fragmented nature of the global telecommunications industry means that telcos tend to struggle to create so-called demand-side economies of scale. These economies of scale rely on network effects stemming from the value generated by having a large number of users. In such a case, there is both inherent value in the use of the service and value derived from other people’s use of the service.

The big success of the internet giants can, in part, be attributed to significant network effects. Telcos, on the other hand, are in a tougher position. Partly this is due to the nature of the services they traditionally provide. Unlike the internet giants who can reach anyone around the world with an internet connection, telcos are have largely been limited to serving users in the countries in which they operate networks.
Despite this, large operators should – in theory – be well-equipped to create so-called supply-side economies of scale due to the sheer size of their business. With telecoms being a high fixed-costs business, the cost of providing telco services per customer falls as the number of customers increases.

Figure 2: Some telcos are big – but they are unable to create the same network effects as the internet giants

So, have these large multinational telcos managed to create scale effects? Unfortunately, we find rather sobering evidence to the contrary. Figure 3 shows that multi-country operators tend to underperform the industry average. Large European multi-country operators – such as Orange, Telefonica, Vodafone and Deutsche Telekom – all underperform the telco global average operating margin of 17%. On the other hand, large single-market operators, namely AT&T and Verizon, achieve margins above the global average.

Figure 3: European giants struggle to create economies of scale

Contents:

  • Executive Summary
  • Multinational telcos have struggled to create economies of scale
  • A Telco Cloud strategy can deliver scale economies for multinational operators
  • Introduction – Economies of scale in telecoms
  • International expansion has delivered a global footprint for some telcos
  • Telcos’ (economies of) scale in perspective
  • Multinational telcos need to revisit their approach to creating economies of scale
  • The dilemma of multinational telcos – can Telco Cloud help overcome it?
  • Telco Cloud: a brave new world?
  • The cost problem: multinational telcos need to create synergies across markets
  • The revenue problem: multinationals need to calibrate the right innovation model across markets
  • The traditional Opco-driven innovation has inherent problems
  • Centralisation of innovation isn’t the answer either
  • What is the right model for telcos?
  • Conclusions

Changing Culture: The Great Barrier

Introduction

On Tuesday 6th December, STL Partners met with 17 executives from telecoms operators in SE Asia, including Singtel, Starhub, M1, Telekom Indonesia, Axiata, Bridge Alliance and Tata Communications. The group was a fairly even mix of C-Level, SVP/VP, and Strategy / ‘Heads of Digital’ roles.

The session was conducted under clear and explicit anti-trust guidelines, and had the objective to review and explore learnings in the strategic and operational transformation of telecoms business models.

Objectives of Transformation

One of STL Partners’ global observations is that all operators have different goals in the pursuit of transformation. This was also true with the group in Singapore, as shown by the following chart of a vote on the priorities assigned to different transformation objectives.

Figure 1 – Transformation priorities are different for every operator

Source: STL Partners

The subsequent discussion showed that behind these votes:

  • Improving customer engagement (and customer centricity) is a fundamental goal of almost all operators
  • Operators, like all businesses, want to manage costs, and this is generally a welcome benefit of change
  • Most operators wish to improve the fundamental agility of their businesses – to become faster to market
  • For some, creating new revenues from new services is the primary objective, while for others, it is seen as a welcome possibility once the core agility has been improved

What is the outlook for growth for telcos?

STL Partners shared findings from its recent research report Which operator growth strategies will remain viable in 2017 and beyond? that examined the growth performance of 68 operator groups globally over the last seven years.

Figure 2 – The growth performance of 68 global operator groups 2009-16

Source: STL Partners

The overall picture presented was that most telcos had enjoyed a period of good growth in this time, though latterly growth rates have slowed to an average of 2% globally. Many markets, especially in Europe, are now in decline. Voice and messaging revenues have been eroded by substitution from Internet based applications, and data competition has by and large brought strong growth in usage volumes, but not enough to make up for the declines in voice and messaging.

Can data growth ‘save the day’?

A question raised in Europe and discussed again in Asia when this analysis was presented, is whether broadband data sales can offset the declines in voice and messaging revenues. The arguments for and against this are summarised in Figure 3.

Figure 3 – The arguments for and against broadband producing long term growth

Source: STL Partners

 

  • Executive Summary
  • Introduction
  • Objectives of Transformation
  • What is the outlook for growth for telcos?
  • Can data growth ‘save the day’?
  • Why is transformation so difficult?
  • The challenge of achieving synergy with the core
  • So ‘going digital’ is becoming a necessity whatever your strategy
  • Opportunities for ‘Telco Cloud’ Centred Growth
  • Models for how to transform
  • The Publisher / Utility Model
  • 20 transformation metrics that matter
  • Digital Maturity Model
  • NFV/SDN Playbook
  • Case Studies of Transformation in Practice
  • Telkom Indonesia – Becoming the “King of Digital”
  • Celcom Axiata – Quick ‘HITx’ to Kick-start Transformation
  • Conclusion: how to change model and culture together?
  • 1. Establish transformational leadership and vision
  • 2. Empower and motivate people to unlock culture
  • 3. See success through a new lens (and new metrics)
  • 4. Re-engineer the guts of the business

 

  • Figure 1 – Transformation priorities are different for every operator
  • Figure 2 – The growth performance of 68 global operator groups 2009-16
  • Figure 3 – The arguments for and against broadband producing long term growth
  • Figure 4 – A clear majority in the group believed broadband will not sustain long-term growth
  • Figure 5 – Telco ‘digital’ plays have experienced varied success to date
  • Figure 6 – Telco Cloud services by type
  • Figure 7 – NTT Docomo is one leading benchmark for new revenue creation
  • Figure 8 – The ‘Utility’ and ‘Publisher’ Models
  • Figure 9 – A high level Digital Maturity Model
  • Figure 10 – The NFV/SDN ‘Playbook’ explained
  • Figure 11 – Telkom Indonesia’s ‘Digital Telco’ vision
  • Figure 12 – Telkom Indonesia’s Transformation Key Success Factors and Lessons
  • Figure 13 – How the HITx programme was delivered
  • Figure 14 – Which area of transformation has the greatest value, and what requires the greatest effort?
  • Figure 15 – A new business ‘stack’ for telcos?

Telco Cloud: Translating New Capabilities into New Revenue

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Preface

The telecoms industry is embracing network virtualisation and software defined networking, which are designed to both cut costs and enable greater agility. Whilst most operators have focused on the operating and capital cost benefits of virtualisation, few have attempted to define the range of potential new services that could be enabled by these new technologies and even fewer have attempted to forecast the associated revenue growth.

This report outlines:

  • Why and how network functions virtualisation (NFV), software defined networking (SDN) and distributed compute capabilities could generate new revenue growth for telcos.
  • The potential new services enabled by these technologies.
  • The revenue growth that a telco might hope to achieve.

This report does not discuss the cost, technical, organisational, market or regulatory challenges operators will need to overcome in making the transition to SDN and NFV. STL Partners (STL) also acknowledges that operators are still a long way from developing and launching some of the new services discussed in this paper, not least because they require capabilities that do not exist today. Nevertheless, by mapping the opportunity landscape for operators, this report should help to pave the way to fully capturing the transformative potential of SDN and NFV.

To sense-check our findings, STL has tested the proposed service concepts with the industry. The new services identified and modelled by STL were shared with approximately 25 telecoms operators. Hewlett Packard Enterprise (HPE) kindly commissioned and supported this research and testing programme.

However, STL wrote this report independently, and the views and conclusions contained herein are those of STL.

Introduction

The end of growth in telecoms…?

Most telecoms operators are facing significant competitive pressure from rival operators and players in adjacent sectors. Increased competition among telcos and Internet players has driven down voice and messaging revenues. Whilst demand for data services is increasing, STL forecasts that revenue growth in this segment will not offset the decline in voice and messaging revenue (see Figure 5).

 Figure 5: Illustrative forecast: revenue decline for converged telco in advanced market

Source: STL Partners analysis

Figure 5 shows STL forecasts for revenues over a six-year horizon for an illustrative converged telco operating in an advanced market. The telco, its market characteristics and the modelling mechanics are described in detail later in this report.

We believe that existing ‘digital’ businesses (representing consumer digital services, such as IPTV and managed services for enterprises) will not grow significantly on an organic basis over the next six years (unless operators are able to radically transform their business). Note, this forecast is for a converged telco (mobile and fixed) addressing both enterprise and consumer segments; we anticipate that revenues could face a steeper decline for non-converged, consumer-only or enterprise-only players.

Given that telcos’ cost structures are quite rigid, with high capex and opex requirements to manage infrastructure, the ongoing decline in core service revenue will continue to put significant pressure on the core business. As revenues decline, margins fall and telcos’ ability to invest in innovation is curbed, making it even harder to find new sources of revenue.

New technologies can be a catalyst for telco transformation

However, STL believes that new technologies have the potential to both streamline the telco cost structure and spur growth. In particular, network functions virtualisation (NFV) and software-defined networking (SDN) offer many potential benefits for telcos.

Virtualisation has the potential to generate significant cost savings for telcos. Whilst the process of managing a transition to NFV and SDN may be fraught with challenges and be costly, it should eventually lead to:

  • A reduction in capex – NFV will lead to the adoption of generic common-off-the-shelf (COTS) hardware. This hardware will be lower cost, able to serve multiple functions and will be more readily re-usable. Furthermore, operators will be less tied to vendors’ proprietary platforms, as functions will be more openly interchangeable. This will increase competition in the hardware and software markets, leading to an overall reduction in capital investment.
  • Reduction of opex through automation. Again, as services will be delivered via software there will be less cost associated with the on-going management and maintenance of the network infrastructure. The network will be more-centrally managed, allowing more efficient sharing of resources, such as space, power and cooling systems.
  • Product lifecycle management improvements through more integrated development and operations (devops)

In addition to cost savings, virtualisation can also allow operators to become more agile. This agility arises from two factors:

  1. The nature of the new infrastructure
  2. The change in cost structure

As the new infrastructure will be software-centric, as opposed to hardware-centric, greater levels of automation will be possible. This new software-defined, programmable infrastructure could also increase flexibility in the creation, management and provisioning of services in a way that is not possible with today’s infrastructure, leading to greater agility.

Virtualisation will also change the telco cost structure, potentially allowing operators to be less risk-averse and thereby become more innovative. Figure 6 below shows how virtualisation can impact the operating model of a telco. Through virtualisation, an infrastructure player becomes more like a platform or product player, with less capital tied-up in infrastructure (and the management of that infrastructure) and more available to spend on marketing and innovation.

Redefining the cost structure could help spur transformation across the business, as processes and culture begin to revolve less around fixed infrastructure investment and more-around software and innovation.

Figure 6: Virtualisation can redefine the cost structure of a telco

Source: STL Partners analysis

This topic is explored in detail in the recent Executive Briefings: Problem: Telecoms technology inhibits operator business model change (Part 1) and Solution: Transforming to the Telco Cloud Service Provider (Part 2).

 

  • Preface
  • Executive Summary
  • Introduction
  • The end of growth in telecoms…?
  • New technologies can be a catalyst for telco transformation
  • Defining ‘Telco Cloud’
  • How Telco Cloud enables revenue-growth opportunities for telcos
  • Connect services
  • Perform services
  • Capture, Analyse & Control services
  • Digital Agility services
  • Telco Cloud Services
  • Service Overview: Revenue vs. Ease of Implementation
  • 15 Service types defined (section on each)
  • The Revenue Opportunity
  • Model overview
  • Sizing the revenue potential from Telco Cloud services
  • Timeline for new service launch
  • Breaking down the revenues
  • Customer experience benefits
  • Conclusions
  • Appendix
  • Modelling Assumptions & Mechanics
  • Service Descriptions: Index of Icons

 

  • Figure 1: Defining Telco Cloud
  • Figure 2: Overview of Telco Cloud categories and services
  • Figure 3: Telco Cloud could boost revenues X% higher than the base case
  • Figure 4: Breakdown of Telco Cloud revenues in 2021
  • Figure 5: Illustrative forecast: revenue decline for converged telco in advanced market
  • Figure 6: Virtualisation can redefine the cost structure of a telco
  • Figure 7: Defining Telco Cloud
  • Figure 8: Telco Cloud Service Categories
  • Figure 9: Telco Cloud will enable immersive live VR experiences
  • Figure 10: Telco Cloud can enable two-way communication in real-time
  • Figure 11: Overview of Telco Cloud categories and services
  • Figure 12: Telco Cloud Services: Revenue versus ease of implementation
  • Figure 13: Telco X – Base case shows declining revenues
  • Figure 14: Telco X – Telco Cloud services increase monthly revenues by X% on the base case by Dec 2021
  • Figure 15: Telco X – Timeline of Telco Cloud service launch dates
  • Figure 16: Telco X (converged) – Net new revenue by service category (Dec 2021)
  • Figure 17: Telco Y (mobile only) – Net new revenue by service category (Dec 2021)
  • Figure 18 Telco Z (fixed only) – Net new revenue by service category (Dec 2021)
  • Figure 19: Modelling Mechanics