Cloud players reshape telecom’s landscape — Industry Voices: Walker

Matt Walker

The cloud surged in 2020, and key players redoubled efforts to penetrate telecom.

Telecom operators continue to strike deals with the cloud sector. Many of the deals involve collaboration, including joint development or delivery of services. From the cloud players perspective, they're partnering with telcos; but telecom is also one of many vertical markets for them to sell to, and not the easiest to tap.

There are also many telecom vendors that are trying to figure out this new competitive landscape between telcos and cloud providers.

So what is the relationship between telecom players and big cloud operators such as Amazon Web Services, Microsoft Azure and Alphabet’s Google Cloud Platform (GCP)? Are they partners, vendors/buyers, or competitors?

MTN Consulting publishes quarterly vendor share in the telecom vertical, covering more than 100 suppliers of hardware, software and services. Many of them are starting to call out the cloud players as among their key competitors. VMware is an obvious one; it notes that “providers of public cloud infrastructure and SaaS-based offerings, such as AWS, GCP, Oracle and Microsoft Azure” are direct competitors.

IBM says its systems segment competes with a large number of “alternative providers” including Amazon, Google, Microsoft, as well as IBM’s own cloud-based services (which also target telcos, just to complicate things). Oracle, a top 25 supplier to telcos, notes that its enterprise cloud license, on-premise license, and hardware offerings compete with Amazon and Microsoft.

Citrix is a small player in telecom but competition for its NetScaler ADC products include AWS. For Nokia’s Software group, AWS, Azure, and GCP “accelerate the move to cloud-native telecoms software, on which Nokia Software has geared its strategy”, but the relationship is complex: these webscalers are partners, customers, and competitors, depending on the situation.

RELATED: Google Cloud, AWS and Azure want to 'friend' telcos, but not every telco is ready to click 'accept'

And then there’s Huawei. Stifled by supply chain restrictions and security concerns in its traditional markets, Huawei is investing more in its cloud division. Huawei does not have a large self-designed and -owned network of hyperscale data centers, yet, but it has grand visions, deep pockets, and the largest installed base of telecom network infrastructure on the planet.

Webscalers soared in 2020

The COVID-19 pandemic depressed economic growth in 2020 but spurred faster growth in the cloud services sector. A wide range of “webscale” operators providing cloud services seized the opportunity afforded by the COVID-induced shifts toward working and studying from home. Rather than cutting back as economies crashed, they steered into the skid – investing heavily in their networks and aggressively marketing services to new customers and vertical markets. 

Total revenues for the webscale network of operators tracked by MTN Consulting grew to $1.7 trillion in 2020, up 18%. Ecommerce and device sales were contributors to this growth, but the highlight was cloud: for five of the top webscalers (Alibaba, Alphabet, Amazon, Microsoft and Tencent), cloud revenues surged 38% to $95 billion in 2020.

Supporting the cloud’s growth also drove investment in this sector, pushing up total webscale capex from $103 billion in 2019 to $133 billion in 2020. Webscalers’ R&D expenses grew at the relatively modest rate of 15% in 2020, to $179.5 billion, with cloud intelligence and services also driving R&D. More recently, results for 1Q21 are consistently showing strong growth in cloud revenues and related data center and subsea cable capex for the big cloud providers.

Telecoms embrace collaboration with the cloud

Nearly a decade ago, as cloud services began gaining popularity, many telcos hoped to be direct beneficiaries on the revenue side. The cloud market went a much different direction, though, with large internet-based providers proving to have the global scale and deep pockets able to develop the market effectively. From 2011-2020 webscale operators invested over $700 billion in capex, a big portion of it devoted to building out their cloud infrastructure. 

The cloud sector has geared its offerings to businesses of all stripes and sizes. Serving telecommunications operators was not an initial focus for many reasons. Telcos have unique network requirements and stringent reliability criteria, and tend to make purchasing decisions slowly. Many telcos also viewed cloud providers with trepidation, as potential competitors on the enterprise side. Yet the telecom market is also one of the biggest around, viewed as a prize worth fighting for. Nearly $300 billion in annual capex and $1.2 trillion in opex (excluding depreciation) are figures that are hard to ignore. Amazon Web Services (AWS) made the earliest strides in telecom, in 2015 (with Verizon), but Azure and GCP were serious about the market by 2017. 

By 2020, the cloud sector had made significant headway in telecom. The figure below provides an estimate of cloud revenues in the telecom vertical for the three top US-based players, and China-based Alibaba and Tencent.

Matt Walker chart

Now in 2021, few days go by without a major new telco-cloud collaboration announcement. Just in the last few weeks: 

  • Telefonica signed a collaboration agreement with Microsoft for Azure Private Edge Zone, combining private 5G connections from Telefonica with Azure edge computing capabilities on the customer premise. (May 11)
  • Vodafone expanded on existing work with Google Cloud to create a six-year partnership to jointly build a new integrated data platform to help Vodafone “more quickly offer its customers new, personalized products and services across multiple markets” (May 3)
  • Dish Network, a greenfield open RAN-based operator in the U.S., agreed to build its 5G core network on AWS: Local Zones to support low latency, Outposts to extend capabilities to customer premises, Graviton2-based instances for compute workloads, and EKS to run containerized workloads. (April 21)

Cloud penetration in telecom is occurring across the globe

Telefonica, Vodafone and Dish are based in Europe and the U.S. and are relatively large companies — but smaller telcos in emerging markets are also getting in on the action. 

Malaysia-based Axiata, for instance, started using Amazon EC2 to help manage the cell towers of its edotco subsidiary back in 2016. Axiata ramped up things in 2020. Its XL unit in Indonesia picked Google Cloud’s Anthos platform to “automate, manage and scale workloads across its hybrid- and multi-cloud environments” with a goal to move 70% of workloads to the cloud by 2023. Axiata’s Malaysian operating unit, Celcom, picked Azure in 2020 to migrate operations and workloads to the Azure cloud, with help from Tech Mahindra as a systems integrator. 

The cloud providers are leaving no stone unturned in their efforts to go after business in the telecom vertical. Moreover, they are also partnering with the traditional vendors to the telecom vertical to develop joint offerings. Nokia announced three such deals last quarter, one each with AWS, Azure and GCP. There are many other examples. NEC and AWS teamed up in 2019 on a mobile core solution, for instance, and Amdocs has collaborations in place with each of the big three. Just last month Amdocs won a digital transformation deal at Singapore’s M1 which leverages the Azure relationship.

Whether the cloud players are competitors, partners or suppliers, they're going to continue to reshape telecom’s landscape for years to come.

Matt Walker is the founder and Chief Analyst of MTN Consulting, LLC, an independent market research firm. He has over 20 years of experience in telecom industry analysis, consulting and research program management. Walker currently lives in the Bangkok Metropolitan Area. He can be reached by email at [email protected]. Follow him @mattwtelecom, or LinkedIn

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce staff. They do not represent the opinions of Fierce.