Telefonica has joined Vodafone in picking a cloud partner for enterprise services, rather than fielding its own carrier cloud. Neither Telefonica nor Vodafone picked the top provider—Amazon—and neither picked runner-up and hybrid cloud leader Microsoft either. Telefonica selected Google and Vodafone selected IBM. What does all this mean for operators, for carrier cloud, and for the cloud market overall?
Telefonica’s Business Solutions group did the deal, and Telefonica had previously (last year) announced they’d be reselling Google’s G Suite, so the decision isn’t a big surprise in that sense. However, there’s no question the new relationship is more strategic and important, and since Telefonica has been a leader in “clouidifying” itself, as well as a leader in NFV, we have to take a hard look at this decision and its possible meaning…and impact.
Obviously, this puts pressure on other EU operators. More than any other market area, the EU is a combination of an integrated economy and a political federation with a lot of former national competitors in the telco space. All these players are explicitly competitive because of the economic union, and so they all tend to feel the same pressures and watch how the others respond. Telefonica can in theory sell to anyone in the EU, and if Google cloud is on their service list, other operators will need to think about how to respond.
One possibility, of course, is carrier-built cloud services, but that notion has largely fallen into disfavor because of the high cost of market entry, the difficulty in staffing an organization to run the cloud, and the corresponding financial risk of having a failure to launch. My own model never rated operator-provided public cloud services as more than a 14% contributor to carrier cloud deployments, and that number is reached only in 2022, after which the contribution declines. The model also says that operator cloud services are an exploiter of carrier cloud infrastructure rather than a driver, and that’s an important point when considering the question “Why Google and IBM, second-tier players?”
Suppose you’re an operator who believes that software-defined networks, 5G, NFV, and similar stuff will inevitably shift your investment toward servers and hosting. You know you’re eventually going toward “carrier cloud” and so you know that eventually you have a possibility of hosting your own public cloud services on your otherwise-justified infrastructure. But you need to be in the game now, or risk being out of it forever. Do you sign up with Amazon, who will be your arch-rival, and hope they don’t end up shortstopping your own ambitions, or with a lesser rival?
In fact, you don’t even need to have specific roll-your-own-public-cloud-services ambitions to think in terms of second-tier partners. A deal with Amazon obviously enriches Amazon, making them a more formidable OTT player and future competitor. Amazon is less hungry, too, so they’re not likely to give you as good a deal.
Google and IBM are, of course, as hungry as you can get, cloud-wise. The two are considered locked for third place in the public cloud service wars. A deal with operators would do both companies a lot of good, and so they’d likely do more to get such a deal.
There’s also a possible technical motive here, though. Google actually has the most open of all public cloud services. Their primary tools, like Kubernetes and Istio, are open-source and thus don’t lock users in. In fact, Kubernetes is widely used by all the public cloud providers. A network operator like Telefonica could base a cloud service offering on Google and likely shift to their own offering by adopting the underlying open-source tools. Try that with Amazon.
The question “Why Google?” can, I think, be answered by these points. The harder question is what this might mean for cloud services in general, and carrier cloud in particular. I noted that public cloud services were a minimal contributor to the justification of carrier cloud infrastructure, but they are at least some contributor. The fact that operators aren’t going to draw on public cloud opportunity to justify their own clouds could mean their own clouds are delayed, and also (worse) that they’ve also misjudged the other possible drivers of carrier cloud. NFV, we know already, has fallen far short of expectations in driving cloud infrastructure. 5G may be suffering the same fate.
There can be no question that operators have, overall and for a variety of reasons, failed to exploit any of the possible near-term drivers of carrier cloud. We’re at about 35% of the level of carrier cloud deployments that opportunity could have justified. The Street is now predicting that investment in hyperconverged data centers is slowing. My own model says the biggest source not being tapped is carrier cloud.
Suppose, just suppose, that operators continue to lag in their exploitation of carrier cloud opportunity. If that happens, then they’re almost locked out of any service future other than connection services. That, we know, has been under enormous profit-per-bit pressure for at least six or seven years. It could get a lot worse, especially if we see the Internet as a broad downward driver of per-bit pricing. That would favor shifting more and more services to an Internet-overlay (SD-WAN-like) model. Pricing, like water, seeks its own level, which is the lowest level.
On the other hand, all of this could be good for the cloud as we know it. If Google and IBM are boosted by carrier deals, and if all four of the top vendors (perhaps even joined by Oracle) compete on a more level footing, we could see not only cloud prices but cloud features improve significantly. Another positive is that network operators are exposed to cloud issues that mainstream cloud services have yet to face. We need a unified vision of cloud features, not a vision that separates operators from the rest of the market. Operator interest in partnering with cloud providers might help with that.
The big, and still-open, question is whether operators will decide to host some or even all of their own service elements in the public cloud. There’s no reason why the primary application for NFV today, which is virtual CPE (vCPE) couldn’t be hosted in the public cloud if the data-plane traffic and cost issues were addressed. Might that happen because we rethink how vCPE VNFs are structured, if we could somehow link control-and-management-plane behavior in the cloud with some abbreviated data-plane functioning in the network? It would be a useful discussion for sure, but if operators start outsourcing their own stuff to public cloud providers, it may spell the death of carrier cloud.
I believe we have perhaps two years as the window where this will all play out. My model suggests that if operators don’t achieve at least 60% of the opportunity-driven optimum carrier cloud deployment by 2022, they are unlikely to make the shift to carrier cloud at all. At the current pace, we’d be lucky to get 30% of the optimum, so something radical has to happen.
What’s playing out here is the classic smart-versus-dumb network debate. Back in 2004, I said in a mock presidential debate on the topic, that unless we had “smart” networks, we’d likely see network operators falling back into public utility status, having no real hope of sustaining profitable operation based on simple connectivity services alone. We may test that theory, soon.
Personalization and contextualization represent the two primary and enduring drivers for carrier cloud. The problem is that these drivers are associated with services above and beyond connection, which means they’re not what the operators are comfortable with. It’s not news that they’re dragging their feet here, but what is news is that they’re prepared to outsource a piece of their carrier cloud future to avoid coming to terms with a reality they’ll have to face eventually. Or fall into that public utility status I talked about over a decade ago.