The Public Cloud, a Telco's Friend or Foe?

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1Q 2019 | IN-5376

A cloud is a resource pool of millions of compute architectures that are braided together seamlessly to act as a single large computer. There is no single architecture for cloud environments, so their attributes are still evolving with numerous players staking a claim for a dominant market position. Public cloud encroachment into telecoms is a trend that has been picking up pace of late, building on a widely diffused presence in the enterprise domain where public clouds serve as a foundation for the vast majority of businesses. The economies of scale afforded by Google, Microsoft, and Amazon Web Services (AWS) provide cheap compute that multibillion-dollar companies (i.e., Netflix) find more efficient to pay cloud providers for than to build their own.

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Public Clouds: A Webscale View

NEWS


A cloud is a resource pool of millions of compute architectures that are braided together seamlessly to act as a single large computer. There is no single architecture for cloud environments, so their attributes are still evolving with numerous players staking a claim for a dominant market position. Public cloud encroachment into telecoms is a trend that has been picking up pace of late, building on a widely diffused presence in the enterprise domain where public clouds serve as a foundation for the vast majority of businesses. The economies of scale afforded by Google, Microsoft, and Amazon Web Services (AWS) provide cheap compute that multibillion-dollar companies (i.e., Netflix) find more efficient to pay cloud providers for than to build their own.

 

The calculus is even more stark when startups enter the fray: expandable computing at relatively cheaper price points eases the inception of young technology companies. It thus follows that instead of building own complex data centers companies of all sizes subscribe to one, thereby changing business models. Compute as a service supplants the increasingly redundant compute as a product. Ownership makes way for access. Providing inexpensive access to telecom products is the chief reason an increasing number of telecom vendors are now exploring public clouds as a viable environment to run their core telecoms products. The differences between infrastructure as a service and hardware are profound, raising two questions: are vendors ready to make the jump from a product company to a service company and, equally importantly, how can telcos benefit from this if they are?

Towards Public Clouds

IMPACT


At present, the monetization model for telecom vendors depends on the trio of hardware, (on-prem) software licenses, and a degree of managed services. With the public cloud emergence this commercial model is much more challenging, but that does not preclude vendors from embracing the public cloud either in part or in full. Affirmed Networks is a vendor that recently announced its Evolved Packet Core (EPC) is available as a hosted AWS service. MY COM OSI is going even further by positioning its entire Experience Assurance and Analytics (EAA) suite on a software-as-a-service (SaaS) basis, a pioneering approach predicated on AWS. The commercial imperative, from a vendor’s perspective, is stark: depart from a finite supply of physical equipment, enhanced by feature-differentiation and characterized by scarcity, to a monetization model where the supply is essentially infinite.

  New Economic model  

Webscale providers are leading the market when it comes to selling SaaS offerings, but what they are selling is not merely “software.” Software in isolation, whether it is OSS, BSS, or any other telco or enterprise app, is a digital copy worth nothing. What AWS (or Microsoft and Google) is selling is convenience and scale, a feat they can achieve by virtue of a harmonized and integrated ecosystem of technology and a closely interlinked community that derives utility from it. For telecom vendors, a superior experience on hardware comes from integration. Absent a static endpoint, vendors may pursue an integrated approach where one specific telco function (e.g., service assurance) “sticks” with other functions (service fulfilment). This promotes differentiability and avoids product surplus, an approach pioneered by Netcracker with its Business Cloud offering, a full-stack SDN/NFV platform offered as a service. Netcracker is selling convenience, but unlike other vendors embracing public cloud, the vendor preserves an interdependent architecture underpinned by optimized and proprietary components.

By and large, telecom vendors continue to be hardware companies whose structure is geared towards producing integrated equipment that offers superior engineering performance. Although operating in a different market, Apple is a case in point: its devices deliver perfection and convenience thanks to its proprietary, interdependent architecture that avoids performance surplus. Analogously, telecom vendors must consider three strands to fully realize the value of SaaS telecom offerings, if they can at all:

  • Hardware: proprietary elements remain indispensable for continued growth in next 10/15 years. Vendors must build on their portfolios with “new” technologies (e.g., AI and analytics) that are better optimized in cloud environments.
  • Software-as-a-service: In the long term, when the industry moves away from closed and proprietary architectures, vendors must establish economically viable SaaS “products” that deliver on convenience.
  • Services: Given the emergence of service-based architectures (5G core), vendors must accompany their as-a-service offering with a thorough knowledge of cloud-native platforms that converge upon a multicloud, hybrid cloud ecosystem.

Public Cloud for Telcos

RECOMMENDATIONS


A trend that is picking up pace is for telcos to embrace public clouds for growth opportunities outside of their historical (consumer) markets. The basis of competition in the market is gradually changing because increased digitization creates more business processes and associated complexity.  With the speed and convenience of the cloud, telcos may be well positioned to tame that complexity by combining their core offering with a scalable layer of compute and intelligence. A case in point is the recent joint venture between Vodafone and IBM. Vodafone is now offering simplified and integrated solutions built around a multicloud capability and further enhanced with the intelligence of machines and AI (IBM Watson). This is a significant development, given that telcos’ historical positioning in the global production possibility frontier was solely anchored to network infrastructure.

 

Slowly but surely, as also indicated by Vodafone’s cloud foray, all cloud architectures (public, private, and hybrid edge cloud) are intertwining into one massive cloud. Telcos are in a strong position to provide value, but for a cloud to be viewed as an indisputable telco friend there is a data sharing discussion to deliberate upon. A counterforce opposing the emergence of an intercloud (and myriad commercial use cases) is the need for discrete clouds to share data. Data hoards are seen as a competitive advantage and Vodafone’s venture with IBM may well serve as a bellwether of similar partnerships that tackle the challenge of how to calibrate dispersed and distinct data sets under a single control plane.

 

Telcos’ embrace of the cloud places them in a strong position to offer end-to-end solutions that avert the complexity of multicloud, particularly in the emerging ecosystem of interconnected physical and digital assets. With the right partnership they can use connectivity to differentiate cloud offerings or, alternatively, use cloud to enhance the value they offer in providing connectivity. On the one hand, the exact role that public clouds will play in how telcos position themselves in the impending competitive landscape remains to be seen. On the other hand, they must have the willingness to stake their success on the ability to make commitments today that may not pay off until years into the future. In other words, their strategy should begin with a high tolerance for risk and what they do not know over cloud and associated economic models rather than with what they do, for successful strategies must be built upon a degree of unpredictability, not in spite of it.

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