The concept of carrier cloud has taken some hits over the last months. Media coverage for network functions virtualization (NFV) shows a significant negative shift in the attitude of operators over the progress of NFV. Verizon sold off the cloud business it purchased, and is now reported to be selling off its cloud computing business. Cisco, who had announced an ambitious Intercloud strategy aimed at anchoring a federation of operator clouds, dropped the fabric notion completely. Vendors are quietly reassessing just what could be expected from sales of cloud infrastructure to network operators.
Do we have a problem here, and could it be reversed? There have always been two broad drivers for “carrier cloud”. One is cloud computing services, and the other is the application of cloud hosting to communications services infrastructure. The history of carrier cloud is written by the balance of interest in these drivers, and so the future will be.
A decade ago, when operators were getting serious about transformation and looking for new service vehicles to embody their goals, they believed that public cloud services were going to be the driver of carrier cloud. By 2012 support for that view had declined sharply. Verizon did the Terremark deal in 2011, a year after the high-water mark of operator interest in public cloud services.
What soured operators on public cloud services is lack of support for any credible revenue opportunity. Many of the operators I’d surveyed back at the start were presuming that the success of cloud computing was written in the stars. Actually, it was only written in the media. The presumption that every application run in data centers would shift to the cloud would have opened a trillion dollars in incremental revenue, which certainly was enough to make everyone sit up and take notice. The presumption was wrong, and for three reasons.
The first reason is that the total addressable market presumption was nonsense. Cloud computing as a replacement for current IT spending is an economy-of-scale play. Enterprises, in their own data centers, achieve between 92% and 99% of cloud provider economy of scale. There are some users whose operations costs are enough to add more benefit to the pie, but for most the efficiency difference won’t cover cloud provider profit goals. Taking this into consideration, the TAM for business migration of software to the public cloud was never more than 24% of total IT spending.
The second reason is that even the real TAM for cloud services is largely made up of SMB and SaaS. SMBs are the class of business for whom IaaS hosting can still offer attractive pricing, because SMBs have relatively poor economies of scale. Enterprise cloud today is mostly SaaS services because these services are easily adopted by line departments and displace nearly all the support costs as well as server capital costs. Since operators want to sell IaaS, they can’t sell to enterprises easily and direct sales to SMBs is inefficient and impractical.
The final reason is that real public cloud opportunity depends on platform service features designed to support cloud-specific development. These features are just emerging, and development practices to exploit them are fairly rare. An operator is hardly a natural partner for software development, and so competitors have seized this space.
For all these reasons, operator-offered cloud computing hasn’t set the world afire, and it’s not likely to any time soon. What’s next? Well, on the communications services side of carrier cloud drivers, the Great Hope was NFV, but here again the market expectations were unrealistic. Remember that NFV focuses primarily on Layer 4-7 features for business virtual CPE and what are likely primarily control-plane missions in content and mobile networks (CDN, IMS, EPC). The first of these missions don’t really create carrier cloud opportunities because they are directed primarily at hosting features on agile CPE. The remaining missions are perhaps more credible as direct drivers of carrier cloud than as drivers of NFV, and it’s these missions that set the stage for the real carrier cloud opportunity. Unfortunately for vendors, these missions are all over the place in terms of geography, politics, and technology needs. A shift from box sales to solution sales might help vendors address this variety, but we all know the trend is in the opposite direction.
Virtualization will build data centers, and at a pace that depends first on the total demand/opportunity associated with each service mission and second on the hostable components of the features of each service. Our modeling of carrier cloud deployment through 2030 shows a market that develops in four distinct phases. Keep in mind that my modeling generates an opportunity profile, particularly when it’s applied to a market that really has no specific planning drive behind it yet. These numbers could be exceeded with insightful work by buyers and/or sellers, and of course we could also fall short.
In Phase One, which is where we are now and which will last through 2020, CDN and advertising services drive the primary growth in carrier cloud. NFV and cloud computing services will produce less than an eighth of the total data centers deployed. It’s likely, since there are really no agreed architectures for deploying cloud elements in these applications, that this phase will be a series of ad hoc projects that happen to involve hosting. At the end of Phase one, we have deployed only 6% of the carrier cloud opportunity.
Phase Two starts in 2021, ushered in by the transformation in mobile and access infrastructure that’s usually considered to be part of 5G. This phase lasts through 2023, and during it the transformation of services and infrastructure to accommodate mobile/behavioral services will generate over two-thirds of the carrier cloud data center deployments. This phase is the topic, in a direct or indirect way, for most of the planning now underway, and so it’s this phase that should be considered the prime target for vendors. At the end of Phase Two, we will have deployed 36% of the total number of carrier cloud data centers.
This is perhaps the most critical phase in carrier cloud evolution. Prior to this, a diverse set of missions was driving carrier cloud and there’s a major risk that this would create service-specific silos even in data center deployment. Phase Two is where we’ll see the first true architecture driver—5G. Somehow this driver has to sweep up all the goodies that where driven before it, or somehow those goodies have to anticipate 5G needs. How well that’s managed will likely decide how much gets done from 2021 onward.
The next phase, Phase Three, is short in chronological terms, lasting from 2024 through 2025. This phase represents the explosion of carrier cloud opportunity driven by the maturation of contextual services for consumers and workers, in large part through harnessing IoT. Certainly, IoT-related big-data and analytics applications will dominate the growth in carrier cloud, which by the end of the phase will have reached 74% of the opportunity. In numbers terms, it is Phase Three that will add the largest number of data centers and account for the fastest growth in carrier cloud capex. It’s worthy to note that cloud computing services by operators will see their fastest growth in this period as well, largely because most operators will have secured enough cloud deployment to have compelling economies of scale and low-latency connections between their data centers and their users.
The final phase, Phase Four, begins in 2026 and is characterized by an exploitive application of carrier cloud to all the remaining control-plane and feature-based missions. Both capital infrastructure and operations practices will have achieved full efficiency at this point, and so the barrier to using carrier cloud for extemporaneous missions will have fallen. Like the network itself, the carrier cloud will be a resource in service creation.
The most important point to be learned from these phases is that it’s service missions that drive carrier cloud, not SDN or NFV or virtualization technology. Benefits, when linked to a credible realization path, solve their own problems. Realizations, lacking driving benefits, don’t. SDN and NFV will be deployed as a result of carrier cloud deployments, not as drivers to it. There is an intimate link, but not a causal one.
If all this is true, then supporters of the carrier cloud have to forget the notion that technology changes automatically drive infrastructure changes. Technology isn’t the driver; we’ve seen that proven in every possible carrier cloud application already. The disconnect between tech evolution and service evolution only disconnects technology evolution from real drivers for change, and thus from realization of transformation opportunities.
We are eventually going to get to the carrier cloud, but if the pace of that transformation is as slow as it has been, there will be a lot of vendor pain and suffering along the way, and not just for network equipment vendors. Open source has been the big beneficiary of the slow pace of NFV, and open white-box servers could be the result of slow-roll carrier cloud. Only a fast response to opportunity or need justifies early market movement, and creates early vendor profit. You don’t get a fast response by tossing tech tidbits to the market, you get there by justifying a revolution.