Communication Service Providers (CSPs) are looking to drive monetization of their underlying network infrastructure by climbing the digital value chain and deploying Network-as-a-Service (NaaS) solutions. Achieving this requires agility and flexibility across the business and operating models—from underlying infrastructure through Over-the-Top (OTT) services and back-office processes. The key to effective and efficient transformation will be deepening partnerships between CSPs and neutral hosts, as they can provide vital infrastructure and expertise.
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CSP-Neutral Host Partnerships Are Popping Up, but They Still Remain Limited
5G network infrastructure is slowly maturing, but CSPs have struggled to monetize this expensive networking infrastructure successfully. Climbing up the digital value chain through Network-as-a-Service (NaaS) deployment should be their response to monetization challenges. Deploy a flexible network service that meets future customer network demands through the delivery of more on-demand, “as-a-Service” capabilities Over-the-Top (OTT) of the underlying network infrastructure. Some of these NaaS services include telco cloud, virtual Network-to-Network Interfaces (NNIs), cloud interconnect, and Multi-Access Edge Compute (MEC). However, structural and expertise challenges have meant that CSPs’ digital transformations have been slow, which has had a major knock-on effect on the deployment of these OTT services. Speeding up digitalization is essential, but will not be simple and requires support from ecosystem partners with expertise and infrastructure. Some CSPs have recently grown their relationships with neutral hosts to help accelerate their digital transformation strategy:
- Orange Business Services and Equinix partnered in 2022 to build a fully automated telco cloud Point of Presence (PoP) architecture with Equinix Metal. This enabled Orange to use Software-Defined Networking (SDN) to deliver flexible network services globally without the need to deploy high-cost network infrastructure in each region.
- Colt and Equinix have continued to evolve their partnership since 2017. Recently, Colt combined its networking footprint with Equinix Fabric to deploy intelligent enterprise End-to-End (E2E), on-demand connectivity. Equinix’s global presence allows Colt customers to access network services across 32 countries.
- Telefónica UK has leveraged Digital Realty’s PlatformDIGITAL to help scale up and eliminate capacity bottlenecks from its consumer-facing applications.
- Telna, a global cellular connectivity provider, has used Console Connect’s platform to support virtual connections between its customer sites, as well as public cloud applications, through self-service portals.
These partnerships between CSPs and neutral hosts are a good start and will help CSPs take the first steps to NaaS deployments, but more needs to be done to support CSP monetization.
Neutral Host Infrastructure and Expertise Can Plug Traditional CSP Digitalizaion Gaps
Digitalization and providing OTT services require a complete transformation of foundational elements within an CSP’s approach, including business and operational processes. CSP structural and knowledge barriers mean that partnering with a neutral host to support this transformation will have a clear value proposition that resonates strongly.
- On-Demand Scale: Neutral hosts can provide nearly unlimited resources, so that services can scale dynamically with usage. This solves the key challenges of fluctuating service demand and ensures optimizing costs by transitioning cost models toward Operational Expenditure (OPEX), rather than Capital Expenditure (CAPEX), which has huge operational benefits.
- Global Scale: Monetizing the underlying network requires delivering OTT services on a global basis. CSP infrastructure is often regionally constrained, but neutral host partnerships provide access to global networks without long and expensive network deployments. This will be especially helpful for emerging valuable use cases (e.g., autonomous vehicles) that require complete geographic coverage.
- Time-to-Value: Although building SDN services takes time, neutral host partners will enable CSPs to spin up new connections and services to clients in real time.
- Proximity to Other Providers: CSPs are increasingly required to be able to connect with public cloud applications. Neutral hosts form hubs where different players collocate. This enables easy interconnection between vendors without dedicated, private last-mile connections. In addition, other private service providers (e.g., Software-Defined Wide Area Network (SD-WAN) providers) can be interconnected with CSP NaaS platforms to enhance their service value proposition. Also, neutral hosts can offer network-to-network interconnect, enabling OTT service deployment without needing to own the underlying network infrastructure. This has huge monetization potential for usually geographically-constrained CSPs.
The other option for CSPs is to partner directly with hyperscalers (i.e., Amazon Web Services (AWS), Google Cloud Platform (GCP), Microsoft Azure), as their scale can help eliminate service bottlenecks for CSPs. However, CSP-hyperscaler network service partnerships will not be as effective, given the financial and operational efficiencies created through multi-cloud deployments (especially lowering the threat of vendor lock-in). This means that CSPs are highly likely to favor neutral host partnerships, as they offer proximity to each hyperscaler, enabling easier management of multi-cloud NaaS deployments.
How Can CSPs Make the Most Out of Neutral Host Partnerships?
It is evident that by partnering with a neutral host, CSPs can overcome some of the critical hurdles for network digital transformation. Most obviously, neutral hosts can help solve some of the economic challenges CSPs are facing. They help reduce deployment and operational costs through shared infrastructure, while enabling monetization through geographically dispersed OTT service delivery. Below, ABI Research highlights some key steps that CSPs must take to maximize the value of these partnerships:
- Evaluate Neutral Host Capabilities with an Eye on Strategic Direction: Three core neutral hosts have been involved in CSP partnerships recently—Equinix, Console Connect, and Digital Realty. CSPs must evaluate these core players and understand which fits most closely with their wider networking strategy. Equinix is seen as the market leader with the largest global presence and strong existing vendor partnership (which heightens its value proposition for CSPs). Digital Realty also has a large global presence with more than 300 locations worldwide. But its CSP services are not quite as mature as Equinix’s. Console Connect has a very strong value proposition for CSPs, as it offers deployment flexibility through different colocation facilities (rather than being constrained to owned data center facilities—like Equinix). This is in addition to its PCCW network that provides a strong last-mile connection to services.
- Align Overall Strategy with Neutral Host Partner: Moving from a traditional CSP to one that follows a digital-first strategy is complicated and requires a clear long-run strategy that considers customer needs. CSPs must align this long-run strategy with that of their neutral host partner, ensuring that as each develops, they are moving in the same direction. Without this strategic alignment, CSPs will face risk of lock-in, which has high associated costs. Another aspect to assess is which vendor interconnection will be most valuable; subsequently, CSPs should carefully assess which vendors are collocated at these facilities.
- Hire Effectively to Transform Culture and Values In Line with a Digital-First Mentality: CSPs cannot just rely on neutral host partners to support their digital transformation journey. Internally, CSPs will struggle to cope with the new business and operational models required to support a digital-first strategy. Therefore, CSPs must complement any partnerships with recruitment and restructuring internally to meet business/operational agility requirements.
Moving forward, ABI Research believes that CSP-neutral host partnerships should be a core element of CSP digitalization. They will ensure that CSPs can cost effectively deploy network services strategies and keep up with customer digital requirements. Neutral host capabilities will be able to plug knowledge/infrastructure/cultural/economic gaps within traditionally slow-moving and cash-tight CSPs, enabling them to accelerate their journey toward an on-demand, digital-first NaaS strategy.