The Disarticulation of the Telcos – Revisited

Will the Cloud Eat Telcos? This is an important theme that has been percolating beneath the surface for years, and on which we have written much in the past. And all evidence from this year’s show certainly points in that direction.

The official theme of the show this year was “Velocity”. Which is not terribly helpful. We think the actual theme of the show was “Verticalization”. Which is, if anything, even less inspiring. This sounds boring, it is boring to write, but it is important. Every vendor we visited had some variation on this theme on display. The big equipment vendors dedicated as much of their floor space to their industry verticals solutions as they did to actual telecom gear. 

Along these lines the GSMA, the operators’ industry association, announced a new Telco API initiative. They have done this before, many times, and the fact that we have to point it out tells you everything you need to know about the success of those past efforts. But this year was a bit different, for what we believe is the first time the GSMA’s launch partners include the public cloud providers – AWS, Azure and GCP. Their inclusion is significant (more significant than the APIs themselves) because it signals a growing acceptance of Cloud Providers’ immense importance to the industry. 

More substantive were the announcements coming out of cloud vendors themselves. The big three Cloud vendors are aggressively pursing telco operators’ business. Many, if not most, of the operators already use one of the big three for their corporate IT networks, but the Cloud Triplets want to also provide the operators’ core networks, which is big business.

As with much of the public cloud, Microsoft and AWS are leading the pack. Intriguingly, they are taking two very different approaches to winning. To greatly over simplify, AWS offers a whole lot of features – APIs for this and APIs for that – but letting the operators make decisions about which ones to use. By contrast, Microsoft is offering more complete “packages”, essentially offering to do everything for the operators. (We should probably call these solutions, but we have already exceeded our quota for that word.)

Along these lines, Azure unveiled the Azure Operator Nexus. This is an entire platform for building and deploying telco software, including core network functionality. This has the potential to be incredibly powerful and must look very tempting to many operators. The Nexus is not yet generally available, but it is already being used by AT&T. AT&T’s inclusion here is important. The big telcos have the most to lose by becoming captive to the cloud vendors and are also the most capable (theoretically) of not needing them. So the fact that AT&T is already using it is a potentially disruptive move. That being said, the kernel of Microsoft’s offering actually came from their acquisition of a big team from AT&T. So while it is not clear how interested other big operators will be in this service, it is still telling that AT&T was willing to let it fall so deep into Microsoft’s warm embrace. 

A big motivator behind this is just economics. Microsoft claims that their service can reduce cost of network operations by 40%, a claim they back in a white paper here. That is a massive amount, if true it will eventually force all the operators onto this model. But even if the savings are not quite so meaningful, Microsoft has a lot more to offer. They have massive teams working on security, observability, scalability and all the other features that operators value most. At this point it is hard to argue that any operator can do security better than the big Cloud vendors. And they are also likely very far ahead of the traditional equipment vendors as well. 

AWS also had a very high profile at the show as well with numerous announcements and what looked like an always busy meeting suite. Leading the team at Heavy Reading to ask Dud AWS win MWC?

Telco cycles move slowly. So it will probably take a decade for all this to play out, but from we can tell it is now just a matter of time before AWS and Azure (and a little bit of Google) end up operating most of the world’s telecom networks. 

One response to “The Disarticulation of the Telcos – Revisited

  1. Pingback: Platformonomics TGIF #1: April 7, 2023 – Platformonomics·

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