Back in 2013 we wrote a piece about some of the ways that the 5G wireless standard would change the way operators build their networks. In that piece we pointed out that telcos once controlled their entire software stack, but now that stack is steadily being dis-articulated – taken apart piece by piece. This is one of those proverbial frogs in heating water – with change coming so slowly that no one notices the bigger picture. Truth be told, this really started with the move of networks from circuit switching to packet switching – aka the Internet. But now we are so far down the path that telcos are giving up vast swathes of their network – and it all just seems normal.
Telecom operators, especially in wireless, have three parts to their operations (very loosely speaking): the access network; the core network and their own operations coordinating and managing the other two parts.
Let’s take those in reverse order. The telcos operations network – which we are just going to call their internal IT systems – started going to the cloud a long time ago. These operations look a lot like every other corporation’s IT stack – e-mail, HR systems, accounting, etc. So the logic of moving to the cloud applied to these companies just as well as they did to everyone else’s – move to the cloud and rely on cloud service providers’ best-in-class operations and security with the added benefit of greatly reducing capex. We can (and will) argue that this does not make sense for every company, but for many companies it is a much simpler model.
The core network is a bit more complicated. Many operators stopped running this bit a couple decades ago and instead relied on ‘managed services’ offerings from equipment vendors like Ericsson, Huawei and Nokia. Larger operators, notably the big 3 in the US continued to run their own operations, but even here they have been steadily ceding control. One of the big changes that 5G brings is the ability to disentangle software from hardware. This means that the operators can run much of their switching and ‘commodity’ hardware executing software from their equipment vendors. And once this change happened the same cloud logic as above came into force. For a period, this mostly meant billing and operations software (aka BSS/OSS) but now even fundamental switching and call control is moving to the cloud.
We refer you to a recent announcement from Microsoft Azure last week unveiling their “Operator WAN Cloud”. Microsoft has been very active in M&A around telco software, and they are now fully commercializing those efforts. Microsoft has not been shy about this, they paint a whole vision for how operators can run their networks entirely from the cloud. (And here is a good overview of the recent news.)
What we find most interesting about all this is the way that Microsoft is pushing its offering down to the level of that last part of the telco stack – the radio access network (RAN). The RAN is the part of the network that provides the first point of contact between a consumer’s device and the operators’ network – including base stations, antennas and the associated equipment handling calls. This area is fairly fundamental to operators, this is where the telcos monetize their most precious asset – radio spectrum. This is also the part of the network where the wireless standards really earn their keep. Microsoft’s entry here is a big, aggressive move.
Admittedly, many operators will not take Microsoft up on their offer. The biggest operators are likely to want to maintain more control. At least for now. At some point the economics, and more importantly, the flexibility of the new approach will likely push more carriers to move down this path. And even the biggest ones will likely continue to shed more functions to the cloud. Recall that as far back as five years ago AT&T and Verizon were each already doing a $1 billion a year on AWS.
So just as we noted the long-haul international bandwidth side of telecom operations has now largely moved into the hands of the big Internet companies, so too will much of the onshore, domestic network.