One of the biggest challenges facing communication service providers (CSPs) is finding a way to monetize the huge investment required by 5G. That said, multiple interested parties are just as eager to cash in on capabilities the new technology could bring to enterprises. Some of the most important capabilities include increased bandwidth, better latency and more flexible management methods via the cloud.
With edge cloud being an essential component of these improvements, cloud service providers bring a lot of experience and expertise in the cloud space. This creates a serious dilemma for CSPs – should they compete or collaborate with cloud service providers? There are multiple options and decision factors at stake, and it’s important to explore each.
Background
Traditionally, enterprise and consumer connectivity has been a major part of CSPs’ revenue. Providers offer consumers services such as mobile voice, SMS & data, broadband and more. On the enterprise side, CSPs provide voice services through office private branch exchanges (PBX)’s and mobiles, closed user group, and virtual private networks (VPN).
While CSPs have expanded the horizon of these services, most are connectivity-based solutions with some third party or home-grown applications. Connectivity is becoming a utility, much like electricity or water. CSP’s are worried that they could become just another provider, which would limit their growth and enterprise value.
With the advent of 5G, this scenario is likely to change drastically. 5G brings the following new capabilities – and the ability to deploy a variety of use cases on top of the basic connectivity services primarily for enterprises – which could help CSPs shun the “provider” tag:
- Enhanced Mobile Broadband (eMBB) for vastly higher speeds
- Ultra-Reliable Low Latency Communication (URLLC)
- Massive Machine Type Communication (mMTC)
While eMBB is the classical connectivity method (albeit now at speeds never experienced on mobile networks) the other two capabilities bring in the possibility of new revenue opportunities for telecom service providers.
What’s the dilemma?
CSPs are investing a great deal to build 5G networks. But there will never be enough to have a decent return on investment (ROI) playing in the connectivity space alone. They need to invest in spectrum, 5G radio network and telco cloud infrastructure to help them raise their stake in the value chain of 5G use cases and services. Telco cloud infrastructure – where capabilities like charging, service orchestration & assurance, critical infrastructure security, etc. are hosted – is the only place where CSPs has the choice of creating one of their own infrastructures, especially at the edge. The other option is to use public cloud providers (hyperscalers), which brings us to the dilemma of whether to compete or collaborate.
Both operators and hyperscalers realize the potential value of playing in the enterprise space, and each brings something to the table. CSPs brings forward spectrum, 5G radio coverage to the Enterprise, edge cloud location ownership, fiber /bandwidth connectivity to & from the edge cloud, vCU & RIC hosting, and network slicing. Meanwhile, hyperscalers offer years of expertise handling VNFs and CNFs, adaptability to fast paced technological changes, ability to develop and handle enterprise applications at scale and continuous integration and continuous delivery (CI/CD) expertise.
With their strengths, enterprise relationships and financial might, each has their foot in the door at the enterprise of the future. The most favorable outcome is to create a win-win situation for both. To negotiate this from a position of strength, CSPs must be clear on their collaboration strategy, road map for generating value and potential risks of a given use case.
Decision factors
Five decision factors that can come into play:
- Defining a clear strategy—CSPs will need to identify their strategy on how much they want to collaborate or compete with hyperscalers. When it comes to edge cloud use cases, hyperscalers make for formidable competitors. CSPs may be relegated to being solely connectivity providers. Meanwhile, hyperscalers will reap the benefits from disruptive revenue opportunities, especially where tower companies are willing to rent the space and power required for creating an edge cloud infrastructure.
- Fixed/predictable volumes of network functions (NFs)—If we do a business case for a virtual machine in an ownership model vs. a public cloud model, NFs with predictable volumes that require constant availability (e.g., VoLTE) the reserved pricing model of public cloud makes no financial sense.
- Revenue potential and benefits – known versus unknown—For applications with a risk of take rate and volumes that may drastically vary, it would be beneficial to go for a public cloud infrastructure to flexibly enable the scale in or scale out of the application. An example of such applications includes online gaming, where operators might not be sure of the number of users, take rate, volumes, frequency, etc. of the games.
- Pace of technological changes and investment protection —Technological changes in this space occur at a phenomenal pace. In the last five years, the NFV journey has moved from vertically integrated cloud to horizontal cloud, to today’s containers on Bare Metal.
Traditionally, CSPs would take ten years through a straight-line depreciation accounting methodology for the custom-built hardware and software network function elements. Virtualization uses a five-year straight-line depreciation for hardware and five to seven years for software license costs. With very fast changes in technology and the hardware capabilities, investment protection is a major challenge for CSPs.
- Technological expertise—Not all CSPs will have the necessary level of technological expertise to handle the complexity of cloud setups with workloads of different technologies and generations. Cloud service providers, on the other hand, are far more capable at handling these complexities.
Conclusion
5G presents a great opportunity for CSPs to move up the value chain and avoid being tagged as mere utility providers. A clear strategy and the right set of strategic partners will be critical for CSPs to get a jump start on the competition and receive ROI.
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