AT&T announces cloud partnership with Microsoft 1 day after similar deal with IBM
AT&T has entered into a multi-year, cloud-based collaborative effort with Microsoft the day after announcing an alliance with IBM  that also focused on cloud computing. The teleco and media giant will move many of its non-network apps to Microsoft Azure and use the company’s 365 software suite while Microsoft will deploy new AT&T technologies, such as 5G, to build edge computing applications.
Comment: This is yet another proof point that telco cloud computing has been a dismal failure. AT&T and Verizon have both sold off many of their data centers and given up on cloud computing/storage in favor of the much bigger players (e.g. Amazon, Microsoft, Google and IBM in the U.S.). This new agreement appears to be a big win for Microsoft Azure, and probably at the expense of Amazon AWS, Google and IBM cloud rivals.
“AT&T and Microsoft are among the most committed companies to fostering technology that serves people,” said John Donovan, CEO of AT&T Communications in a prepared statement. “By working together on common efforts around 5G, the cloud, and AI, we will accelerate the speed of innovation and impact for our customers and our communities,” he added (John is NEVER at a loss for words!)
Microsoft CEO Satya Nadella with AT&T Communications CEO John Donovan
The AT&T Microsoft partnership appears to be broader than the just announced AT&T IBM deal (see note 1 below). That deal is cloud-focused as well but is limited to the AT&T Business Solutions business unit, helping to better manage internal applications. A key objective of the IBM deal is to provide tools for AT&T Business solutions to better serve enterprise customers.
AT&T partnerships on edge computing:
AT&T and Microsoft had earlier announced a deal on mobile edge computing which we reported here. Earlier this year, AT&T said it will work with Hewlett Packard Enterprise (HPE) to help businesses harness powerful edge capabilities. The two companies have agreed to a go-to-market program to accelerate business adoption of edge connections and edge computing.
Note 1. AT&T – IBM Cloud Parthership:
AT&T Communications will work with IBM to modernize AT&T Business Solutions’ internal software applications, enabling migrations to the IBM Cloud. IBM will provide infrastructure to support AT&T Business’s applications. AT&T Business will use the Red Hat open source platform to manage workloads and applications. IBM will be the primary developer and cloud provider for AT&T Business’s operational applications and will help manage the AT&T Communications IT infrastructure, on and off-premises and across different clouds –private and public.
As part of the agreement, AT&T Business will be IBM’s primary provider of software defined networking and will leverage the carrier’s latest technologies including 5G, Edge Compute, and IoT as well as multi-cloud capabilities using Red Hat.
Additionally, the two companies will work together on edge computing platforms, which will help enterprise clients capitalize on the power of 5G network speeds and the internet-connected devices and sensors at the edge of the network.
“In AT&T Business, we’re constantly evolving to better serve business customers around the globe by securely connecting them to the digital capabilities they need,” said Thaddeus Arroyo, CEO of AT&T Business, in a prepared statement. “This includes optimizing our core operations and modernizing our internal business applications to accelerate innovation. Through our collaboration with IBM, we’re adopting open, flexible, cloud technologies, that will ultimately help accelerate our business leadership.”
AT&T tests 5G and network edge computing with Microsoft Azure; Partners with Vodafone Business for IoT
AT&T owns >630 MHz nationwide of mmWave spectrum + HPE partnership for Edge Networking & Computing
6 thoughts on “AT&T announces cloud partnership with Microsoft 1 day after similar deal with IBM”
Thanks for the update on the AT&T – Microsoft cloud partnership.
AT&T wants to migrate most of its non-network infrastructure applications to the public cloud by 2024. That migration — which Microsoft’s Azure will handle as a “preferred” (but not exclusive) cloud provider — could free up AT&T’s resources and let it focus more on expanding its core networks, streamlining its workforce, and cutting costs.
AT&T will move “much” of its 280,000-employee workforce to Microsoft 365, the cloud-based suite which bundles together Windows 10, Office 365, and Enterprise Mobility + Security. Microsoft will also “design, test, and build” new edge computing services on AT&T’s new 5G networks.
Edge computing services pull computing power and data storage away from data centers and closer to “edge” devices like IoT (Internet of Things) gadgets and connected cars. Closing that gap boosts data transfer speeds for those devices — an essential upgrade for driverless cars or autonomous drones.
Microsoft didn’t disclose the terms of the deal, but a Reuters report citing people “familiar with the matter” pegs the value at over $2 billion. That represents a significant win for Microsoft’s commercial cloud business, which grew its sales 41% year-over-year to $9.6 billion in the third quarter, or 31% of the tech giant’s top line. Azure and Office 365 are two core growth engines for that business, so bundling them together for a big enterprise customer like AT&T would form a strong long-term tailwind for Microsoft.
Another opaque deal for IBM:
IBM’s multi-year deal with AT&T is more opaque than Microsoft’s. IBM will help manage AT&T’s “hybrid” cloud infrastructure, which merges part of its private cloud with public cloud services. AT&T will also use IBM’s Red Hat open source platform to manage its internal applications.
AT&T Business will also make IBM its “primary” (but not exclusive) provider for software defined networking (SDN) solutions, which enable companies to replace networking hardware with cloud-based services. AT&T will also upgrade IBM’s networks with new 5G, edge compute, and IoT capabilities.
IBM’s announcement is confusing for three reasons. First, AT&T isn’t granting any exclusivity (or even a “preferred” status) to IBM for its migration of apps into its hybrid cloud. Second, AT&T already used Red Hat software prior to IBM’s buyout, so it’s just a continuation of a pre-existing relationship. Lastly, IBM already holds a strategic networking deal with AT&T which covers many of the same bases.
Simply put, IBM spiced up some old news with a few new developments, then repackaged the bundle as a fresh “strategic partnership”. IBM claims that the deal will be worth “billions of dollars” over an unspecified number of years, which makes it impossible to quantify against the value of its cloud business, which grew 5% annually to $19.6 billion (25% of its top line) over the past 12 months.
Recent deals with IBM and Microsoft allow AT&T to connect with an expanding cloud market and could lead to technology vendors altering how they work with partners, according to analysts at global research and advisory firm Gartner Group. “It raises the customer expectation that there will be greater interoperability between different service providers,” says Ed Anderson, research VP with Gartner.
The expanded relationship between AT&T and IBM raised some questions from Sid Nag, vice president, cloud services and technologies for Gartner, about what the long-term gains might be. “IBM has been struggling with their cloud initiative,” he says. “They haven’t made much traction in terms of competing with Amazon, Azure, and Google.”
There have been organizational changes within IBM, he says, and the IBM Think Conference paid special attention to multicloud. While such moves are important, Nag says the way IBM positioned itself indicates it is not looking to get into a knife fight with major cloud providers. “They are kind of tacitly admitting that what they did in terms of head-to-head competition wasn’t working,” he says. “They’ve been struggling to make a dent in the cloud business.”
Nag sees IBM adopting a multicloud services approach as an alternative. The announcement of the deal with AT&T is a way for IBM to remain part of the cloud conversation, he says, from an industry perspective. Another aspect of this is an effort to monetize the recently finalized acquisition of Red Hat. The idea is to modernize AT&T business applications through Red Hat OpenShift technology and then run them on IBM Cloud, he says.
What AT&T gets out of the deal, Nag says, is that it is building a 5G network that needs to be monetized through traffic. “They are looking to place more services on this network,” he says. That means cloud apps, cloud workloads, content distribution, Internet of Things, and edge computing — which IBM can deliver. “Bringing all of that together generates more traffic on the 5G network and creates a need for more utilization,” he says.
There is a tradeoff to such cloud business activity that Nag says could affect IBM’s long-term plans. He framed it as the classic dilemma companies face when a disruptive technology shakes up their business models. “Whatever they do with cloud is going to cannibalize their traditional IT outsourcing services,” he says. “They literally have to change the engine of the plane while it’s in flight.”
Nag says he is curious whether or not the partnership will lead to more customer wins with enterprises that want to leverage the combined resources. “Show me a customer that is actually using all these technologies in an integrated manner and getting business benefits,” he says. “That’s what I want to see.”
During its July 24th 1Q2019 earnings call, AT&T CEO Randall Stephenson said the biggest cost items on AT&T’s profit and loss statement were network and IT. Stephenson said AT&T has been able to drive down its “the factory cost” or “big iron” cost by 8%, 9% and 10% year-over-year, but it has just about maximized those efforts.
“We’re kind of getting to a place where its hard to continue getting those kinds of productivity increases,” Stephenson said. “What were doing with both IBM and Microsoft is leveraging capabilities in large-scale cloud deployments and they are taking over a lot of applications for AT&T, (and) moving those to the cloud. What it’s going to do is allow us to continue this type of cost reduction curve on the network and IT side of the house and continue that momentum there.”
One of the key elements of the Microsoft deal, which is reportedly worth $2 billion, is moving most of AT&T’s non-network workloads to the public cloud by 2024. The two companies’ multi-year alliance includes Microsoft being named as AT&T’s preferred cloud provider for non-network applications as part of the telco’s broader “public cloud first” strategy.
Stephenson also touted the revenue-generating opportunities that AT&T stands to gain from its cloud deals with IBM and Microsoft.
“In addition, we’re securing revenue opportunities with each of those companies and we actually have go to market strategies that will allow us to continue the momentum you’re seeing on the wireline revenue side,” Stephenson said.
AT&T Fiber added 318,000 new subscribers in the quarter, while posting IP broadband revenue growth of 6.5%. In its recent first quarter, AT&T reported 297,000 AT&T Fiber customer additions, with broadband revenue growing more than 8%.
As part of its 2015 merger with DirecTV, the FCC required that AT&T expand its deployment of its high-speed, fiber-optic broadband internet service to 12.5 million customer locations, which AT&T actually exceeded.
“We passed an important milestone, our fiber deployment reaching 14 million customer locations and satisfying our fiber build commitments,” Stephenson said. “This will be an important driver of growth going forward. We expect AT&T Fiber penetration to grow as the service matures.”
Counting business locations, AT&T Fiber now reaches 22 million customer locations.
Recent deals with IBM and Microsoft allow AT&T to connect with an expanding cloud market and could lead to technology vendors altering how they work with partners, according to analysts at global research and advisory firm Gartner. “It raises the customer expectation that there will be greater interoperability between different service providers,” says Ed Anderson, research VP with Gartner.
August 20 2019 update from Chris Rice, senior VP of network cloud and infrastructure at AT&T:
While AT&T is on track for virtualizing 75% of its network by next year, Rice said the deal with Microsoft included AT&T moving its non-network workloads, such as IT workloads and systems and HR functions, to the public cloud.
“Those virtualized network functions will remain on our private cloud, what we call Network Cloud,” AT&T’s Chris Rice said. “But there’s a whole bunch of systems that are actually used to provision, to support, to do service management, to do fault management; all the other things that you do as part of delivering a service, all of those non-network workloads. Those will be the ones that we’re starting to move to the public cloud,” he added.
“Then there are other things that are totally outside of network. There are other functions, kind of classic IT workloads, which will also have to be moved to the public cloud as well.”
“There’s a price and then there’s a quantity,” Rice explained. “So, think of, like, a unit, and a unit could be a unit of compute storage of network, and then there’s a price for that unit, and then there’s a quantity required to go run this function. So, you might need it, this Q quantity, for geographic reasons, for scaling reasons, for other reasons, and you basically build that Q quantity by whatever the busy hour is or the busy need is.”
The Q quantity needs to go up during the launch of a new iPhone or a specific holiday, such as Mother’s Day.
“The public cloud gives us the flexibility to move the Q part with that need,” Rice said. “Whereas, if we were doing it on prem, we’d only really be able to handle that surge capacity by buying more functionality, by buying more of that quantity, and then leaving it in our data center until we need it again.
“So, in a way, that part of it is somewhat inefficient. Even though we run it efficiently for when we need it, we can’t run it as efficiently because we don’t have the ability to just scale up and scale down over shorter time periods. If you look at the fact that even if the price is a little bit higher during those shorter time periods, the fact that your average is much lower for the Q more than makes up for that price difference. So, that’s one of the reasons why moving some of these systems and these IT functions to the public cloud makes sense for someone like AT&T who has variability in some of the workloads.”
Rice said the IT functions and systems have run in AT&T’s enterprise or IT cloud, but now they’ll start to migrate to Microsoft’s public cloud over the next four or five years.
In order to achieve the low latency—such as 20-millisecond round-trip latency— needed for new services and applications, the network has to be closer to the user. Rice said the edge is more about proximity and not connectivity.
AT&T has wireless and wireline connections to its customers. The powering, space and cooling are already in place in its network, and it has the field technicians that are needed to service those central offices or other network locations.
“Now, contrast that to the way the public cloud is built, which is primarily kind of like large, big data centers,” Rice said. “So, they (cloud providers) have very big sites versus kind of the way we’ve done it, which is we have big sites but we also have many distributed sites. They also spend a fair amount of money and time on the user interface, the GUI. They spend money on the ecosystem supply and the marketplace.
“If you could marry the best of both worlds like that together, you have a way of going to the edge that we think makes sense. So part of the relationship that we’ll have with them will be this joint way that we’ll move to the edge together.”
Customer and revenue opportunities from the deal with Microsoft
When it comes to developing business services and applications for enterprise customers, Microsoft and AT&T are creating a symbiotic relationship. AT&T can provide the go-to-market pipeline for Microsoft’s cloud-based services and applications while the cloud enables new business use cases and revenues for AT&T.
“These are two very big companies with kind of a lot of different vectors associated with them,” Rice said. “The reality is we’re a very good network company, world-class arguably, and they’re world-class as a software and cloud company. A lot of times putting solutions together that need all three of those turns into an integration effort for a lot of our customers.
“If we can do that right so we can go to market with what I will call pre-integrated solutions, it could be a lot better for our joint customers and since we have a very similar customer set that would makes sense.”
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