Hyperscalers’ growing influence is reshaping traditional telco value chains. For CSPs and telecom suppliers, these changes represent significant market opportunities if they can strategically align and evolve their offerings.
The telecom landscape is changing fast, and hyperscalers like Google Cloud, Microsoft Azure and Amazon Web Services are now driving the agenda. Just a couple of years ago, communication service providers (CSPs) had a hard time trusting the public cloud providers and were focused on building their private cloud. Not so now. According to Gartner, the three leading hyperscalers have announced 48 strategic deals with Tier 1 CSPs worldwide in the past twelve months, and the 5G infrastructure deal velocity is expected to increase tenfold in the next three years. The confidence in the public cloud now seems unstoppable: in just a few years, by 2025, the majority of enterprise IT spending will be directed to the public cloud rather than traditional sources, according to Gartner.
A confluence of factors has created strong tailwinds in the telecom domain: 5G rollout, the failure of CSP proprietary cloud initiatives, an unstoppable wave of digital transformation fueled by COVID-19, and massive investment from hyperscale cloud providers. The result? CSPs and hyperscalers have become bound together in a relationship increasingly driven by hyperscalers.
CSPs must remain agile to evolve their business operations to take advantage of the significant shifts hyperscaler growth has created. These can be seen most clearly in telecom network architecture, across the supplier ecosystem, and through the rise of new procurement models.
5G-driven modernization
5G connections are on track to surpass the one billion milestone in 2022, according to the GSMA, a massive opportunity for CSPs to capitalize on this layered, multiplay ecosystem.
5G service-based architecture (SBA) demands cloud-native design, open APIs, a DevOps model and Agile principles. This combination plays perfectly into the deep-rooted expertise of GCP, Azure and AWS from performance and cost considerations. One of the first frontiers in 5G architecture evolution has been multi-access edge computing (MEC). The edge land grab has seen explosive deal-making between hyperscalers and CSPs, driven by enterprise interest in edge cloud solutions like machine learning (ML) and 5G-powered, low-latency connectivity.
MEC requires high-performance computing and applications closer to the edge. That plays to the strengths of hyperscalers given the wide availability of public cloud zones and edge pop locations worldwide and proactive investments in initiatives like AWS Wavelength, Google Distributed Cloud Edge (GDCE) and Azure Edge Zones.
Rather than competing with the big three webscalers, canny CSPs are instead looking for strategic partnership opportunities to accelerate the myriad monetization opportunities that the combination of edge and 5G promises. Central to their mission is their need to modernize their tech stacks and charging models to be able to compete.
For their part, hyperscalers are easing the transition to the cloud for CSPs with vertical solutions that address the specific pain points in the telco world. Hybrid and multi-cloud management platforms like Google Cloud’s Anthos carry the promise to become a fundamental tenet of telco cloudification.
Rapidly evolving opportunities in the supplier ecosystem
The 5G era is ushering in a new age of telecoms network infrastructure. 5G adoption and the CSP shift towards the public cloud have driven telecom network suppliers to update their value proposition to include hyperscalers as the pre-integrated infrastructure layer into an overarching SaaS model. Indeed, large tier 1 telco suppliers are foregoing lucrative appliance modes and adopting software strategies to align their offerings with CSPs and hyperscalers’ expectations. MNOs are becoming network equipment suppliers with full-stack 5G offerings from disruptive mobile operators like JIO and Rakuten. Such offerings are leveraging hyperscalers for joint solutions and faster go-to-market.
Hyperscalers are starting to supply their own 5G solution platforms, like private 5G and packet core. However, their go-to-market strategy is still primarily partner-led, with traditional telecom vendors filling a significant portion of their overall telco stack. But, as we know, hyperscalers are known for their agility and deep pockets, so this has the potential to change in the future, especially in light of the continued investments from some hyperscalers in first-party 5G network functions.
Again, hyperscalers have played a pivotal role in driving change with their go-to-market strategy of offering a pre-integrated and readily available worldwide infrastructure footprint and access to Tier 1 operators and a developer ecosystem.
Innovating the traditional procurement model
Hyperscalers are also transforming the way business gets done. Few in our industry could fail to miss the publicly announced deals between hyperscalers and CSPs worth upwards of a billion dollars in committed spending by CSPs over ten years. These “commit” deals are executed top-down to incentivize the entire CSP cross-functional organizations to start migrating network and IT workloads to the chosen public cloud providers.
To enable rapid drawdown of the committed dollars, hyperscalers are also offering these CSP customers an easy single-click procurement of partner ISV network and IT functions (like OSS and BSS) via their marketplace in the form of a SaaS or Subscription business model. Constructs like “Private Offer” make it comfortable for traditional network equipment suppliers to embrace marketplace listings without worrying about competitors gaining insights into their pricing model. It also allows the CSP procurement team to negotiate custom terms and conditions directly with the ISV suppliers while still transacting the deal through the hyperscalers’ marketplace. A positive outcome of this new model is rapid procurement with minimal paperwork, consolidated bill structure and general acceptance of industry-standard terms and conditions associated with a SaaS offering. It creates a trifecta of wins between CSPs, ISV partners and hyperscalers.
Telco transformation brings opportunities in new markets
The telecom landscape is going through a much-needed transformation, driven mainly by the hyperscale giants, Google Cloud, Microsoft Azure and AWS. Ecosystem partners like CSPs and telecom equipment manufacturers are rapidly modernizing their offerings to benefit from the growth of the public cloud and 5G. In the process, traditional value chains are being disrupted in the race to deliver next-generation, flawless digital experiences.
CSPs have shifted their business and technology strategies to understand, acknowledge and embrace the growing capabilities of public cloud providers. In the modern telecoms landscape, rather than competing with the hyperscalers head-on, CSPs are choosing to collaborate strategically in potentially lucrative markets such as edge computing.
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