Network operators are going to both offer cloud computing services and adopt them internally, but the question is “How?” It’s now looking like internal applications for cloud computing are influencing operator cloud planning more than expected. Last week I talked about AT&T, which is about the only provider I can really talk about in specific detail. However, I do have general statistics on operator cloud plans, and I’ll share them (and some modeling and opinions) here.
Let’s start with true internally deployed cloud data centers. All operator classes think that “eventually” they will have elements of some network services running in hosted-feature form. Thus, all think they’ll have some sort of hosting. Tier Ones are prepared to say that they could, by harnessing all the “drivers” of carrier cloud I’ve blogged about, eventually build out their own cloud infrastructure with good economy of scale. You’ll note all the “eventually” qualifiers here; over the last year, Tier Ones have pulled back on specific and optimistic positions on how long carrier-cloud infrastructure will take to justify itself.
Only a few Tier Twos and no Tier Threes seem to have any specific “cloud infrastructure” aspirations. Those two tiers see “hosting” or “edge computing” as deploying some selective server racks in a convenient location, rather than building cloud infrastructure. Of the 100,000 carrier cloud data centers my model shows could be justified by 2030, over 80% come from Tier Ones and nearly all the rest from contained-geography-focused Tier Twos.
Network services with some hosted features aren’t the end of things operators could host in the cloud. A more recent area of interest is operators’ own business applications. All operator classes tended to think their own applications and public cloud enterprise applications would need comparable cloud service resources. Think “application cloud” here, and you get the idea. Operators think both the opportunity to offer public cloud, and the need to host some of their own applications in the cloud, will develop before they’re likely to have achieved reasonable economies of scale and tolerable first costs for their own data centers. This is the new insight that’s been driving some changes in operator cloud strategy, so we’ll look at it in more detail.
Let’s start with operators’ own applications. All the Tier One operators plan to use cloud computing for internal applications. Today, about two-thirds say their internal applications are “likely” to be hosted on their own clouds, but that number is down from almost 80% just a year ago. Almost half “would consider” hosting internal applications (what AT&T calls “non-network” applications) in the public cloud under some circumstances, primarily as a backup strategy or to serve thin international service geographies.
Again, things change rapidly as we dip down toward the smaller operators. About half of all Tier Twos and almost all Tier Three operators say they are “likely” to host at least some of their internal applications in the public cloud rather than on their own clouds. These operators don’t believe they can achieve reasonable economies with their own clouds, but it’s important to note that these operators are also (in about the same percentage) looking at offering public cloud services through resale agreements with public cloud providers. Interestingly, most Tier Threes see themselves more as consumers of cloud services than as providers, even in that “eventually” future.
For public cloud services offered to others, the numbers (as already noted) are similar. About two-thirds of Tier One operators think it’s “likely” they will ultimately provide their own infrastructure for public cloud services to enterprises, and also likely to offer third parties hosting facilities for SMB SaaS applications. This doesn’t reflect the view that offering public cloud services would justify a build-out of carrier cloud (even among Tier Ones, only about a quarter seem to believe that), but rather a view that they’ll eventually get carrier cloud infrastructure to support other drivers (which we’ll discuss below). I’m also seeing willingness to outsource enterprise cloud services to a cloud provider partner is becoming more credible as time passes, as the recent announcements in the space show. The reason seems to be a fear that the opportunity will develop before the operator can build out efficient internal cloud resources.
Because Tier Two and Three operators are more reactive, they haven’t planned for their own clouds much, and don’t have an internal political position to protect. They’ve expressed willingness, and even desire, to use public cloud resources extensively. I saw in consulting activities five years ago that some Latin American Tier Two and Three operators were actively looking at public cloud provider partnerships based on some early sales interest. However, these operators (and Tier Two and Three operators in general) have found that early sales interest in public cloud services rarely developed into real opportunity. Almost three-quarters of Tier Twos and over 90% of Tier Threes said the sales cycle for public cloud services was too long, and that they would be happy to “send prospects” to a public cloud provider but didn’t want to have much involvement in presale support, much less post-sale.
Let’s summarize where we are at this point. Operators think they’ll be using the cloud to host their own applications, and most think they’ll likely be “offering” cloud services either on their own infrastructure or on public cloud partnerships. The question is whether the need for the cloud will develop in a way so as to justify their own carrier cloud infrastructure, or whether they’ll have such a slow ramp with such diverse requirements that they’ll probably have to rely in the near term on public cloud partnerships.
How “far” is “near-term?” That depends on the pace at which the demand drivers I’ve been blogging about might develop. If operators see a lot of near-term opportunity to harness the cloud, that could justify a build decision. If not, then they’ll likely have to start with a partnership deal with a public cloud provider. To talk about the result of that, we have to look at the drivers themselves.
Let’s start with NFV. At the moment, virtual CPE (vCPE) is the only NFV mission that’s getting much specific attention. Tier Ones think that NFV is helpful for vCPE in business services, and in some very specialized situations, even for residential vCPE. Most Tier Ones expect vCPE to mean deploying a uCPE appliance at business locations to hold virtual features, and perhaps augmenting that with cloud-hosting of additional features. Tier Twos and Threes are split on vCPE; about a third say they would like to have cloud-hosted vCPE and two-thirds say they want uCPE on the premises.
I had expected that Tier Two or even Tier Three operators who had a very contained service geography (a city, for example) might be more inclined to cloud-host features, but there wasn’t much of a difference in the view of these geographically focused operators versus those with more widespread prospect bases. While getting gear to more distant users is recognized as a problem, especially in emerging markets, it’s difficult to find good cloud hosting services or facilities close to dispersed customers, which makes operators wary of a cloud solution.
For the public cloud services driver, as previously noted, attitudes are closely related to NFV/vCPE thinking. All Tier Ones say they expect they will “eventually” offer public cloud services to business customers, and about three-quarters think that’s true of residential services too. Tier Two and Three operators have varying views, aligned this time with their service areas. Metro-focused operators think business cloud services are a strong strategy, with nearly all Tier Twos buying in to the idea, and about two-thirds of Tier Threes.
What about the other drivers, like contextual services, IoT, advertising and video? Even Tier Ones are telling me that whatever comments are being made about these drivers of carrier cloud, the truth is that it’s “wait and see” in real planning terms. Nobody really knows what any of these drivers would mean in terms of software architecture or hosting requirements, so nobody is rushing out to build anything to support them. Some of the drivers are looking doubtful in credibility terms, too.
Most everyone thinks IoT is hyped at this point. Some Tier Ones are still hopeful that somehow something will happen, but they’re still focusing on the happy future where every device has a 5G radio attached and is associated with someone who’s paying the bill. IoT processing is still a totally dark area for operators, and while we can’t rule it out (everyone, even operators, follows the money), it isn’t looking like much will develop in the next three or more years.
Advertising and video are a real near-term opportunity, and here we see an opportunistic segmentation of operators according to whether they offer or plan to offer their own streaming services. Those who do are eager to understand video platforms, ad platforms, and personalization or contextualization. The others see that as coming with whatever their video source or partner offers. In the US, you can see that AT&T fits in the roll-your-own-video school and Verizon is happy to partner with somebody.
True contextual services were languishing till late last year, according to operators. This year, they’re being tied to the whole AI thing, which is good in the sense that it generates some management interest, but bad in the sense that it’s a technology and not an application. A lot of operators say “we’re going to integrate AI into…” something, but they don’t really have a clear idea what AI will do for that something, nor do they have a clear idea what the business value of the whole thing will be. In short, AI is anonymizing the contextual services space, when what’s really needed there is an understanding of the enormous value of context in productivity and personalization. Sure AI could help implement it, but the overall service model needs to be defined before we start trying to write code, AI or otherwise.
From my contacts overall, I’m getting a sense that the space is dividing. There are a few operators like AT&T who have a clear goal in cloud computing and carrier cloud, and though many of them don’t exactly have the projects aimed in the optimum (or even right) direction, they’re making progress. The rest seem to be slipping into more inaction. It’s possible that many had hoped that some generalized standards process, like NFV, would somehow answer all the questions. That doesn’t seem likely now, and so they’re out of insights, for now.
That’s why the “application cloud” is so interesting. It may have created confusion for AT&T regarding the way it fits within their overall cloud plan, but it’s also advanced cloud thinking. It could do that for other operators too. But one final qualifier: Operators are interested in advanced services in direct proportion to their concern about revenues and profits for basic connection services. AT&T has a fairly low demand density, and thus a greater risk of marginal profits from connection services. Whether application-cloud thinking will spread widely, even to operators with good demand densities (like Verizon), is something we can’t yet predict.