Cloud Service Providers Increase Telecom Revenue; Telcos Move to Cloud Native

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 service providers as among their key competitors. VMware is an obvious one. It notes that “providers of public cloud infrastructure and SaaS-based offerings, such as Amazon AWS, Google GCP, Oracle Cloud and Microsoft Azure” are direct competitors.

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.

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, cloud service providers had made significant progress in the telecom sector. The figure below, courtesy of MTN Consulting, provides an estimate of cloud revenues in the telecom vertical for the three top U.S. based cloud service providers as well as China-based Alibaba and Tencent.

Here is how cloud computing helps telecom operators thrive and provide better services:

  • Ensure high scalability: telcos who have made their journey to the cloud can easily scale up for today and scale back down once the demand for telecommunication services returns to its normal.
  • Guarantee resilience: cloud computing helps telecom companies quickly recover from stressful situations such as sporadic high loads, hacker attacks, hardware failures, etc. It is based on a well-architected approach that allows the self-healing of a system in time. Anomaly detection, automation, and adaptiveness are the key concepts of it.
  • Offer quick disaster recovery: anything from a power outage at a data center to a security breach may cause data loss. If you have backups of databases stored in the cloud, you can quickly restore all the data.
  • Improve time-to-market: with cloud computing, telecom companies can deliver their products and services faster, because they no longer have to procure individual pieces of hardware for each function in the network. They can now develop network functions from the outset as software and run them on servers hosted in a cloud environment.
  • Cut expenses: in terms of cost economics, cloud reduces the operating expense of a company setting up and managing its own data center. This includes various costs associated with hardware, software, servers, energy bills, IT experts, etc. With cloud infrastructure, a telecom company simply pays only for services it uses.
  • Enhance customer experience: cloud computing helps telecom operators minimize latency, strengthen security, provide automated customer support, predict customer preferences, and offer new omnichannel digital experiences.
  • Enable network automation: cloud helps automate today’s manual processes regarding designing and testing new network components; deploying, orchestrating, and monitoring networks. This becomes possible thanks to continuous integration, continuous testing, and continuous deployment. Modern networks are able to analyze their performance and respond to issues in real-time that only boosts customer satisfaction.
  • Make use of data: telecom companies process huge volumes of customer data. And cloud enables operators to drive valuable insights from this data with the help of data science and data analytics. As a result, telcos can use these insights to further improve their operations. For example, during the pandemic, telecom operators provide data to monitor how people and crowds are spreading the virus.
  • Generate new revenue streams: telecom operators can monetize their physical infrastructures by partnering with cloud service providers. Until recently, operators and hyperscalers were seen as competitors. But partnerships between telecommunications companies and cloud providers will only support further market growth. Telcos can offer their infrastructures to cloud providers to help them get closer to customers at the edge by launching platform solutions dedicated to telecoms infrastructure and integrate directly with 5G networks.
  • The latest of such solutions include: Wavelength from AWS, Azure Edge Zones from Microsoft and Anthos for Telecom from Google Cloud.

Several new telco-cloud collaboration announcements 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)
  • Google Cloud and AT&T announced a collaboration to help enterprises take advantage of Google Cloud’s technologies and capabilities using AT&T network connectivity at the edge, including 5G. Additionally, AT&T and Google Cloud intend to deliver a portfolio of 5G edge computing solutions that bring together AT&T’s network, Google Cloud’s leading technologies, and edge computing to help enterprises address real business challenges.

The cloud service 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 their Azure relationship.

Matt Walker, founder and Chief Analyst of MTN Consulting LLC wrote in a Fierce Telecom article: “Whether the cloud players are competitors, partners, suppliers or all of those, they’re going to continue to reshape telecom’s landscape for years to come.”

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Telco’s Move from Virtual Network Functions (VNFs) to Cloud Native Core Networks:

With VNFs, many network operators (e.g. AT&T) have automated portions of their infrastructures. But to satisfy new performance demands and meet the needs of modern customers, telcos are now migrating to fully cloud-native infrastructures.

Cloud-native network functions (CNFs) are a new way of providing a required network functionality using containers.

CNFs are dynamic, flexible, and easily scaled, making them a favored solution in the transition to 5G. While a VM with its own operating system may consume several gigabytes of storage space, a container might only be tens of megabytes in size. Therefore, a single server can host more containers than VMs, significantly boosting data-center efficiency while reducing equipment, maintenance, power, and other costs.

In the near future, it is expected that many of the deployments on the road to 5G will consist of a mix of CNFs and VNFs as we are now at the transition stage of moving to fully cloud-native architectures.

Image courtesy of N-iX  (a Ukraine and Poland based provider of software development outsourcing and professional services)

Here are some suggestions to facilitate telco’s move to cloud native core networks from N-iX:

  1. Decide on the cloud strategy: choose the best deployment model: public, private, or hybrid clouds, select the most suitable approach: single cloud or multi-cloud, settle on the cloud provider (s).
  2. Create a clear migration plan: it should include your goals, costs estimates, timelines, services and technology to use, etc.
  3. Choose a VNF migration strategy: define which network functions need to remain as VMs and which can be re-architected as cloud-native microservices.
  4. Assess and prioritize your apps, processes, and operations: understand app dependencies; categorize your apps into mission-critical applications, business-critical applications, customer-facing applications, and other non-critical apps; define operations that can be automated; simplify processes so that they consist of fewer steps.
  5. Adopt microservices architecture: transform your monolith architecture into a number of loosely coupled microservices to be able to quickly develop, test, and deploy new features and fixes without impacting other components of the application.
  6. Make use of containers: Containers make it easy to move applications between environments while retaining full functionality. They also make it possible to build and run scalable applications across public, private, and hybrid clouds.
  7. Leverage edge computing: edge computing is among the top telecom trends. Telcos should make use of edge networks to reduce latency and improve network performance by bringing workloads closer to the users who need to access them. As opposed to the content delivery network (CDN), which is considered to be the predecessor of edge computing and only stores cached data, edge networks, by contrast, can accommodate a wider array of functionality (they can store and process data in real-time) and device types.

Nokia is a strong supporter of Cloud Native. Here’s what they say:

For 5G, service providers need more from cloud. Cloud must be re-architected to cloud-native so that they can get breakthrough business agility in rapidly onboarding new apps and deploying & operating new services.

The scale of 5G brings many more devices and a very diverse mix of services, there’s no way legacy operations can keep up, they need much more automation, especially for slicing. 5G brings new performance demands, so the cloud needs to move towards the edge, for the sake of low-latency, localized reliability, and traffic steering; for that CSP need cloud-native’s efficiency.

The journey to cloud-native

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References:

https://www.fiercetelecom.com/telecom/cloud-players-reshape-telecom-s-landscape-industry-voices-walker

https://www.n-ix.com/cloud-computing-telecom/

https://www.nokia.com/networks/portfolio/cloud-native-solutions/

Heavy Reading: “The Journey to Cloud Native” – Will it be a long one?

 

 

 

IDC: Microsoft Azure now tied with AWS as top global cloud services provider

The public cloud services market grew over 24% year-on-year in 2020 to $312 billion, according to the latest study from IDC [1.]. The cloud services market includes Infrastructure as a Service (IaaS), System Infrastructure Software as a Service (SISaaS), Platform as a Service (PaaS), and Software as a Service (SaaS).
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Note 1.  IDC’s Worldwide Semiannual Public Cloud Services Tracker® monitors the evolving and shifting competitive dynamics of the public cloud services market. It tracks and measures the individual public cloud services providers’ historical business performance and forecasts five years into the future — across 53 geographies and up to 80 discrete market segments. This extensive coverage of vendor share information enables both global and local players to benchmark themselves in terms of business growth and market penetration. Software vendors, systems integrators, value-added resellers, distributors, investors, and other users will be able to keep track of the market performance of main competitors such as Salesforce, Oracle, Google, Microsoft, and Amazon Web Services as well as identify the newcomers to the market and measure the impact and potential of those new players on the competitive landscape.
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Spending continued to consolidate in 2020 with the combined revenue of the top five public cloud service providers (Amazon Web Services (AWS), Microsoft (Azure), Salesforce.com, Google, and Oracle) increased their spending by 32% and captured 38% of the worldwide total market.

Thanks to an expanding portfolio of SaaS and SISaaS offerings, Microsoft now shares the top position with Amazon Web Services in the whole public cloud services market with both companies holding 12.8% revenue share for the year.

“Access to shared infrastructure, data, and application resources in public clouds played a critical role in helping organizations and individuals navigate the disruptions of the past year,” said Rick Villars, group vice president, Worldwide Research at IDC. “In the coming years, enterprises’ ability to govern a growing portfolio of cloud services will be the foundation for introducing greater automation into business and IT processes while also becoming more digitally resilient.”

While the overall public cloud services market grew 24.1% in 2020, consistent with the past four years, the IaaS and PaaS segments have consistently grown at much faster rates. This highlights the increasing reliance of enterprises on a cloud foundation built on cloud infrastructure, software defined data, compute and governance solutions as a Service, and cloud-native platforms for application deployment for enterprise IT internal applications. IDC expects spending on foundational cloud services (especially IaaS and PaaS) to continue growing at a higher rate than the overall cloud market as resilience, flexibility, and agility guide IT platform decisions.

“Cloud service providers are rapidly expanding their portfolio of infrastructure and platform services to address confidential computing, performance intensive computing, and hybrid deployment scenarios,” said Dave McCarthy, vice president, Cloud and Edge Infrastructure Services. “Extending these foundational cloud services to customer premises and communications networks enables a broader set of use cases than previously possible.”

“The high pace of growth in PaaS, IaaS, and SISaaS, which combined account for about half of the public cloud services market, reflects the demand for solutions that accelerate and automate the development and delivery of modern applications” said Lara Greden, research director, Platform as a Service. “As organizations adopt DevOps approaches and align according to value streams, we are seeing PaaS, IaaS, and SISaaS solutions become increasingly adopted and, at the same time, grow in the range of services and thus value they provide. Innovations in edge and IoT use cases are also contributing to the faster rates of growth in these markets.”

“SaaS applications are the largest and most mature segment of public cloud with 2020 revenues of $148 billion. Organizations across industries hastened the replacement of legacy business applications with a new breed of SaaS applications that is data-driven, intuitive, composable, and ideally suited for more distributed cloud architectures. Organizations looking for industry-specific applications can choose from a growing assortment of vertical applications. The SaaS apps market is dominated by a longtail of providers that account for 65% of the total market,” said Frank Della Rosa, research director, SaaS and Cloud Software.

Worldwide Public Cloud Services Revenue and Year-over-Year Growth, Calendar Year 2020 (revenues in US$ billions)

Segment 2020 Revenue Market Share 2019 Revenue Market Share Year-over-Year Growth
IaaS $67.2 21.5% $50.2 19.9% 33.9%
SaaS – System Infrastructure Software $49.2 15.7% $40.2 16.0% 22.4%
PaaS $47.6 15.2% $36.1 14.4% 31.8%
SaaS – Applications $148.4 47.5% $125.2 49.7% 18.6%
Total $312.4 100% $251.7 100% 24.1%
Source: IDC Worldwide Semiannual Public Cloud Services Tracker, 2H20

Looking at the segment results, a combined view of IaaS, SISaaS, and PaaS spending is relevant because it represents the foundational set of services that end customers and SaaS companies consume when running, modernizing, building, and governing applications on shared public clouds. In the combined IaaS, SISaaS and PaaS market, the top 5 companies (Amazon Web Services, Microsoft, Google, Alibaba, and IBM) captured over 51% of global revenues. But there continues to be a healthy long tail, representing nearly half the market total. These are companies with targeted use case-specific PaaS services or cross-cloud compute, data, or network governance services. The long tail is even more pronounced in SaaS, where customers growing focus on specific outcomes ensures that over two thirds of the spending is captured outside the top five.

For more information about IDC’s Worldwide Semiannual Public Cloud Services Tracker, please contact Kathy Nagamine at 650-350-6423 or [email protected]
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