Hyperscalers have been strengthening their telco ambitions in 2021, culminating with Amazon Web Services (AWS) launching its own private 5G solution this month (December). The AWS model for private 5G is consumption-based with pricing determined by coverage area and bandwidth. While the solution immediately targets the US, expansion into other national markets with shared or local enterprise spectrum arrangements will be the next step. The move will start a trend.
Other hyperscalers will jump on the bandwagon in 2022. But there is a serious debate on what role the likes of AWS, Google, and Microsoft will take in the supply chain for enterprise-grade private networks. Some commentators reckon they will compete with system integrators (SIs) and communication service providers (CSPs) to provide end-to-end solutions to enterprises. But this will probably not be the case, in reality.
Their expertise lies in processing payloads in cloud or edge infrastructure. They realize private cellular will ultimately be a sizable opportunity and generate significant traffic for their cloud and edge infrastructure. Even though the motivation behind entering the private 5G domain might be to draw more workloads into their infrastructure, it still changes the telco industry in two important ways.
Firstly, it heralds the arrival of consumption economics into the private 5G domain, as discussed. While other private network offerings have already shifted from cap-ex to op-ex models, their primary cost determinant has remained the number devices connected to the network. For enterprises under tight budgetary control, this fixed cost is a barrier. The AWS offer removes this barrier, making it particularly appealing to small and medium-sized enterprises.
Secondly, hyperscalers are now getting involved in the sale of 5G infrastructure. While Microsoft has done so with the acquisition of Metaswitch and Affirmed Networks already, AWS is doing so by attracting partners to its marketplace and offering market exposure. As ABI Research said in March, hyperscalers are adopting an SI position while also providing essential cloud components.
Is everything lost for traditional network operators, network vendors, and network SIs? No. It is unlikely this will be the case. Hyperscalers will focus their efforts on attracting new payloads. A direct-to-enterprise sales channel might serve as one way to achieve this. But success across different verticals and different enterprises requires a high degree of customization; each deployment will have to start from scratch and will scale easily.
In the end, hyperscalers will always rely on both direct and indirect go-to-market channels. This should encourage all of these other parties to put in place a solid hyperscaler strategy. The most promising way for them to collaborate is through co-creation initiatives. Incumbent telcos need to focus on their unique selling points. As the power of licensed spectrum vanishes with liberalization initiatives, the traditional value proposition of CSPs is under attack.
Public network infrastructure might be a more critical asset in this context. Many enterprises will require connectivity beyond their premises. While a range of new entrants try to provide this by partnering with satellite companies (Rakuten, for example, partnering with Ligado networks), these partnerships have not yet generated noticeable market traction, as relying on satellite costs significantly more than utilizing terrestrial infrastructure.
Operators have important enterprise-grade networking assets. It is important for them to bring these to the table and form strategic partnerships with hyperscalers, rather than just settling as sales channels for hyperscalers. Co-creation is the most obvious answer to secure their stake in the private network market. But to be successful, CSPs need to show considerably more flexibility in terms of their deployment models and business models. Whether this happens is anyone’s guess.
About the author
As part of ABI Research’s 5G Markets research service, Leo Gergs focuses on the commercialization of 5G, covering 5G use cases across several enterprise verticals and their financial impact. His area of expertise lies in identifying key enterprise vertical requirements and mapping them to 5G capabilities and in turn identifying what the future use cases and potential new business opportunities will be for the new generation. As such, he is in regular exchange with different enterprise verticals and associations like 5G-ACIA or 5GAA. He is also involved in calculating the economic value of 5G across different verticals and its contribution to global GDP.
About ABI Research
ABI Research is a global technology intelligence firm delivering actionable research and strategic guidance to technology leaders, innovators, and decision makers around the world. Our research focuses on the transformative technologies that are dramatically reshaping industries, economies, and workforces today.
