The REAL truth about the ‘Telco Cloud’ journey – what do operators really need to think as strategy

The ‘Telco Cloud’ as a concept has been prominent within the industry, a little over 5 years now since its inception. This is driven by the cloudification of the RAN. Most Telcos were openly endorsing the benefits of O-RAN all this while, though they were advised on the contrary by their NEP partners for obvious reasons! The popularity of disaggregating the Hardware from Software soon gained ground as a concept but it was not just about this logical separation. The focus soon shifted towards the CTO OPEX spends, which became very much part of prominent board room conversations in Telcos and hence this was looked upon to increase shareholder value and profitability without understanding the ‘real’ deal of its implementation challenges.

But of course, as luck would have had it, certain telcos showed the way of leveraging this platform better as they truly believed in the mantra of being a true digital services provider. Their portfolio strategy was forward thinking and even today it is radically different and ahead of the competition curve as compared to most operating the same region. If we take a step back and understand the rationale and analyse this situation with poise, we would surely decipher that it was not just about OpEx optimization or margin improvements driven by TCOs these telcos truly believed in the platform for driving a new set of services which were unheard of in the past.

At present almost 30 percent of the global telco network capacity across 4G, 5G NSA and 5G SA networks is serviced by cloud native platforms. Though this figure is pretty conservative and is expected to grow another 15-20 percent over the next 5-year period. This being the core of the strategic imperative and is a matter of survival for an industry which is in a state of flux for sometime now where the CAGR is less than 2 percent globally. The rationale is obvious, telcos must change toward the enterprise game from the consumer game and the biggest catalyst to enable in this transformation is the implementation of Telco Cloud stack to support next generation services which will be more focused towards Industry X related use cases thus driving the ‘telco to tech-co’ journey faster. This is the REAL reason where all CTOs are now seriously contemplating to disaggregate the network and roll out a plethora of ‘Advanced’ services supporting this agenda. Its far more important that just optimizing TCO, unlike the popular belief.

For telecom networks this decade is considered and tagged as the ‘decade of transformation’. Many large tier one carriers with direct connectivity to the internet, are already trying to host majority of their global network traffic on cloud-based systems. Virtualization of network functions is another key indicator of Telco Cloud transformation. VNFs will remain the key to brown field transformation. Telco Cloud platforms will also gain prominence due to complex orchestration principles and the desired level of automation associated with it. More than 60 percent of the core network functions have already been virtualized but it’s the RAN part which needs much to be done. To achieve much greater scale with regards to the products and services offered followed by the complexity in rendering them will be the biggest driver for Telco Cloud transition.

Besides all the hyper-scalers trying to make a mark in the Telco Cloud space, though some of them have had very successful PoCs like MS-Nexus but they are yet to prove their true mettle in real world implementation and be a competitive force with the likes of VMware Tanzu.

Going a step further, if we have to analyse a hypothetical situation with 2 telcos adopting 2 different strategies for their NSA to SA migration of 5G; one adopting a vertical stack from any of the standard NEPs (there are plenty of examples available in the market, across geographies) Vs the one which is adopting a horizontal Telco Cloud platform in combination with the NEP , which we call as the ‘disaggregated’ model, assuming both of them have a similar subscriber base, we will see that the ‘cost per GB’ or ‘cost per TB’ whichever unit is being considered we will NOT see any significant difference in the TCO. Hence the perception that vertical stack TCOs are cheaper is more of a myth than a reality! At least that’s what’s seen in the market as a trend and even if there is a difference its not worth considering for.

I am of the opinion that the NW transformation budget by the CTO office will be re-defined and there will be a transition into rendering a much higher budget spend in the areas of professional services (including integration of the platform), consulting and advisory, services innovation and change management. Though many would like to believe that majority investments for the next 2 years will be in R&D and infrastructure but I certainly believe in order to make this a scalable and industrialized proposition across telcos in growth and matured markets this transition into other areas ought to happen and it will so much faster than what we have anticipated.

As stated, since the driver for Telco Cloud should be the product strategy enabling next generation services and not entirely a cost optimization argument. In order to generate higher customer centricity with these new services and achieve greater customer life time value of the products and services offered, each telco would be looking to have this platform as a ‘must’ within its eco-system.

5G Services and commoditization of the same will be a reality in the next 2-4 years in the B2B / Enterprise space and telcos will be more of service enablers rather than service providers. Hence all m-IoT, Industry X (B2B2X) or URLCC use cases which are mainly going to NW slicing driven, will require ample support of such platforms to deliver a high degree of customer satisfaction and increase stickiness. The estimated 5G VAS such as AR-VR, metaverse like services ought to leverage network resources to its fullest potential and NaaS will be a reality going forward. This is the only and the best way to fast monetize the investments for any 5G network upgrades that have happened whether its NSA or SA.

One doesn’t have the luxury of patience much in the industry these days, simply because there has been substantial revenue erosion witnessed by these telcos over the past decades where majority of the OTT players have ridden on their network and have not delivered their share of the pie with these telcos. They have learnt this the hard way indeed and are trying to mitigate any potential risks by partnering with all relevant parties and doing technology improvements by transforming their monolith network into a networked model by a platform driven strategy.

Telco Cloud is a great ray of hope for most telcos who really want to embark upon this journey of transformation to be a technology player themselves and not just survive but grow and deliver shareholder value both in the short and long term. The focus must be now in successful implementation of these Telco Cloud platforms, integrating this with the existing telco NW eco-system components both hardware and software and finally maintaining and managing this effectively. I have no doubt that in the near future especially with NW slicing gaining more prominence and with the complexity of orchestration logic across multiple layers, of Customer (BSS), Service (products and services offered) and Resource (network infrastructure) the Telco Cloud will be an absolute necessity for faster time to market and monetization of services for all telcos.

The article is authored by Niladri Shekhar Dutta. The views expressed in the above article are entirely personal and bear no resemblance to my job profile or role. It is neither affiliated to any organization that I work for.