One key application of “carrier cloud” is 5G Core services, and that’s the most telco-ish of all the carrier cloud applications. Is it realistic for non-telco vendors to hope to grab that opportunity?
There seem to be a lot of candidates to supply 5G Core these days, including many who don’t provide 5G network components. Oracle is perhaps the newest according to Light Reading. This raises two important questions. First, why would any company believe they could win a 5G Core battle against a full-scope 5G supplier. Second, given the difficulty in making a business case for any incremental 5G spending, why would operators move ahead with 5G Core and not stay with the 5G-over-IMS/EPC (5G NSA) approach? Here’s a combination of operator views and my own noodling.
To set the stage, only two of 28 operators I’ve heard from on the topic say they are convinced that there are 5G Core service revenue justifications in place today. Despite that, the number of operators who now say they’ll be deploying 5G Core has grown significantly since the first of the year. Of those 28 operators, only 10 felt they’d move to deploy 5G Core in 2020, where today 24 say they will. What’s driving these operators, if they don’t have a business case for 5G Core?
A big part of it is competition. Of the 22 operators who say they are betting a business case will come along, rather than that one is already in place, 17 of them say the competitive risk of an “incomplete” 5G deployment is unacceptable. If any of their competitors do a full 5G Core rollout, they’ll suffer in the 5G market, even among consumers who don’t know 5G when they have it, in many cases.
There is also some optimism that business cases will develop. All 22 operators who don’t yet have a convincing 5G Core business case believe they will have one within a year, with most saying it will come along in early 2021. About half (multiple answers were acceptable) think that the pandemic and lockdown will increase 5G Core value, a third think that big enterprises are liable to deploy private 5G or even enhanced WiFi if their operators don’t support network slicing, a quarter still hope for IoT, and four are just confident.
While this is progress, at least for 5G proponents, it still adds up to a toe-in-the-pool commitment and not a full-on dive. That’s the thing, according to the operators, that’s encouraging everyone from cloud providers to software vendors to try to get a piece of the 5G Core side. According to the operators, there is serious interest in doing 5G on the cheap in many geographies, and in particular for Tier Two and below.
There are different paths to 5G Core, of course, which is what’s creating the broader interest in jumping in. Where is this coming from? One fear of even optimistic 5G Core candidates is that to offer 5G Core across their entire 5G footprint, out of the box, will create a significant carrier-cloud infrastructure cost when the actual Core features needed for most of 2020 will be minimal. In other words, “first cost” is very high in proportion to the Core-specific revenue growth rate. Given that, starting off with cloud-hosted 5G software would make a lot of sense, and operators have been testing the public cloud waters on that matter, which gave rise to the sudden surge of 5G hosting strategies we’ve read about, and some of the M&A.
About half of operators aren’t as worried about first cost as they are worried about total cost of ownership. Here, the “Huawei problem” is cited. Huawei has long been the price leader in most of networking and they’re particularly so in 5G. For operators who were considering Huawei as their supplier, the current global angst about Huawei in 5G networks means they have to consider other options, and these other options include a la carte 5G, meaning open RAN and at least competitive software for the core. This group isn’t as big on carrier cloud hosted by public cloud providers (though some say they might do that for a year or so) as they are about inexpensive (preferably open-source) 5G Core software from a variety of sources. They fear that other traditional 5G providers, with Huawei off the competitive table, will suddenly discount less.
It’s not only the “Huawei problem” that’s putting pressure on 5G, though. Operators are increasingly aware of the fact that they’re probably at greater risk to predatory pricing and vendor lock-in for 5G than for any other network technology that’s ever come along. About a year ago, over 80% of operators said that they believed that the 5G market would be “competitive”, and today less than half that number believe it will be, if you don’t have open-model 5G to keep them honest. Then, of course, if you assume that open-model 5G is the price-leading competitor, why just use it to try to beat a discount out of a higher-priced vendor? Why not adopt it?
That, in my view, is the big news in the 5G space. Operators are being pushed beyond simple 5G NSA into full 5G Core by a variety of factors, and they’re uneasy about the business case for the move. They see that mobile networking, like all of networking, is going to be a drain on profit per bit. When I asked if the operators thought they could charge a premium for 5G service, versus 4G, they said that unless a buyer needed a specific 5G feature like network slicing, they did not expect 5G to cost more. Given that the consumer value proposition for 5G is more data in less time, this seems guaranteed to erode profit per bit even further. To prevent that, cost per bit has to dip, and it’s not realistic to assume that doing the same old business with the same old vendors is going to accomplish that. Thus, competition for 5G Core, and interest in open-model networking.
The question is whether “interest” translates into “opportunity”. There seems to be a near-conviction among Tier Two operators (and below) that they will be implementing 5G Core with someone other than one of the big mobile network vendors (Huawei and Ericsson). Tier One operators are less committed but no less interested. Only one Tier One I talked with foreclosed the idea of going with a non-traditional player for 5G Core, and surprisingly (to me) there was actually more interest in having a cloud-hosted option than having a software solution they’d have to host themselves.
One wild card in this is that almost all the larger operators say that cloud hosting, meaning public-cloud 5G Core, was a “short-term solution”, and that would mean they’d prefer to get 5G Core from a software provider who could either host the stuff in a public cloud or provide it to the operators in carrier-cloud-data-center form. I think this is what both VMware and HPE see as their specific opportunity in the 5G space, and IBM likely has the same vision (but their own cloud may not be pervasive enough to make it a compelling hosting option).
Whatever the goal of the players and operators, there’s still a lot of assembly required in this approach, and that worries operators. EU telcos in particular resist the idea of using a collection of elements to build 5G Core, believing any issues with the process in a market as competitive as the EU could be fatal. IMHO, any player who wants to be a 5G Core provider is going to need to kiss a lot of carrier babies in their marketing initiatives and collateral, or they’re going to face an uncomfortably long and rocky sales cycle.