At the Informa Future Vision Executive Event 2022, Andrew Parkin-White of TecFutures moderated an expert panel to debate the Clash of the Titans: Can Telcos Fight Off the Hyperscaler Threat? Andrew was joined by Sergio Gonzalez of Microsoft, Hrvoje Jerkovic of Three UK and Paolo Grassia of ETNO.
Growth in telcos has been lower in the past ten years. At the same time, they are having to invest ever more in new networks, particularly for potential opportunities offered by 5G and IoT. Telcos are moving to more advanced data-intensive connectivity services such as 5G and fibre to the home. We could say that there has been a shift in value from the networks to the services running over these networks and that makes for attractive revenue opportunities to ecosystem players. A cloud-based architecture can support that and enable new revenue streams from expanded service offerings. Hyperscale providers operate to this model.
there is the risk that the telcos may miss out on these opportunities to providers including Amazon Web Services (AWS), Microsoft and Google who also have ambition in the network space.
A TecFutures global survey undertaken in October 2022 into drivers, challenges, and opportunities for IoT Communications Service Providers found that overall, 14% of IoT CSPs ranked the threat from hyperscalers to be in the top three challenges they are facing. The threat was seen as greatest by global operators and felt equally by MNOs and MVNOs.
So, is competition or collaboration the key to market success? There are 4 key strategic considerations.
ROI for network investment in next generation services is no longer guaranteed
Hrvoje points out that there is a long legacy of telco network and service investment. Telcos are now seeing OTT players jumping onto their networks which generates traffic but not necessarily revenues to the telco as they are effectively using networks for free. The telcos need to provide robust network service for customers with the requisite speeds and quality meaning that they need to invest substantially.
Paolo states that there are often four or five operators competing on infrastructure and service and so there are low fixed and mobile prices, the lowest in the world. The regulatory framework has favoured competition and low prices, but this can impact the sustainability of the investment decisions of operators . We also see a rapid substitution of telecom legacy services, voice messaging, and TV with OTT services. This fragmentation, low prices, shift to OTT services and regulation really puts into question the return on investment of telecom operators. This raises the issue of whether there are ways to redistribute the cost needed for investment in the new networks.
Do hyperscalers have an unfair advantage and are ecosystem disruptors?
Hrvoje is not of the opinion there is unfair competition between operators and hyperscalers but makes the point that as more cloud providers move into the network and at the edge, there are issues raised about whether the regulatory framework is fair. Hyperscalers have become similar to connectivity providers as they control and operate important network functions. There is also the issue of operators being locked into particular hyperscalers as the four largest cloud providers have 80% of the market by revenue even more by now and a is lack of competition.
What advantages does the telco have over hyperscalers?
Hrvoye raises the issue that telcos have a large capex which will be a crucial advantage in the future. Network investment is not of particular interest to hyperscalers as, due to EU regulation, it is not possible for a third party to deploy a network. There is a very good opportunity in the future for partnership with hyperscalers, essentially moving workloads from telco datacentres to the hyperscalers. In recent years, there have been proof of concepts to migrate some business-critical functions to the public cloud.
Hyperscalers and telcos share similar goals – collaboration is key
Sergio raises the issue that telcos and hyperscalers are already working together on key areas including 5G IoT and mission-critical 5G. The next generation of cloud will need a much tighter integration with telecom networks. 5G networks offerings are proliferating across the globe and new in-building services – such as private networks – are driving the need to bring the cloud platforms closer to the mobile network and embed them in the network. This approach requires partnering to enable connectivity between these cloud platforms and the mobile networks.
Sergio also identifies that hyperscalers can offer particular advantages in terms of reach, economies of scale and handling large volumes of data. For example Microsoft is partnering with operators in helping them have more AI centric customer relationships and in bringing the next generation of services. He makes the point that collaboration is the way forward and sees much to be done in the area of 5G. However, as 5G begins to mature, there will be ever more collaboration. The future for both looks promising.