Will Telcos Eventually Move Beyond AWS Wavelength?

AWS partnerships with a number of telcos as part of Wavelength, one of several new AWS edge computing initiatives,  does inevitably raise the issue of how “partnerships” represent value and revenue for connectivity providers. 

AWS already has signed Verizon, Vodafone, KDDI and SK Telecom as access partners, and also appears to be leasing data center space from the carriers. So, at the very least, it appears each of the telco partners will earn some data center leasing revenue from AWS, which is placing its servers in telco racks (presumably often in central offices). 

Each telco probably also gains some dedicated access (capacity) revenue as well.

There is some potential indirect benefit, as often is the case, even from partnerships with little direct incremental revenue, as the availability of AWS edge computing services makes the connectivity service more valuable. 

The AWS partnership does provide near-term value in allowing each of the telco partners to tout their presence in the edge computing market, at low investment costs to them. 

On the other hand, it is hard to see much incremental revenue upside from this sort of partnership. As always, the biggest revenue and profit returns will flow to providers that own the infrastructure and the services, as always is the case for owner’s economics.

Still, when markets are young, revenue upside is likely small and investment costs high, that “creep in” at low cost strategy reduces risk. Telcos gain some marketing platform advantages and some “rent rack space” revenue.

Greater levels of investment and risk come with business models “up the stack,” including operating an owned “edge computing facilities as a service” business. Another step up is to sell edge computing capabilities directly, not simply selling colocation space to third parties.

More intense models including owned business-to-business apps, and finally, direct sale of full retail apps to end users. 

Wavelength limits telco risk, but also telco revenue and strategic upside. Eventually, some may try--or expand--other initiatives with more revenue and profit upside. Longer term, at least some of the connectivity providers may attempt to enter or grow other edge-related businesses. Both AT&T and Verizon own businesses in the auto communications area, for example. 

Still, AWS is making its edge computing strategy clearer, launching several initiatives, showing the competition access providers will face from others in the ecosystem.

AWS Wavelength embeds AWS compute and storage services within telecommunications provider data centers at the edge of the 5G networks.

AWS Local Zone extends edge computing service by placing  AWS compute, storage, database, and other select services closer to large population, industry, and IT centers where no AWS Region exists today. 

AWS Local Zones are designed to run workloads that require single-digit millisecond latency, such as video rendering and graphics intensive, virtual desktop applications. Local Zones are intended for customers that do not want to operate their own on-premises or local data center.

Likewise, AWS Outposts puts AWS servers directly into an enterprise data center, creating yet another way AWS becomes a supplier of edge computing services. “AWS Outposts is designed for workloads that need to remain on-premises due to latency requirements, where customers want that workload to run seamlessly with the rest of their other workloads in AWS,” AWS says.  

AWS Outposts are fully managed and configurable compute and storage racks built with AWS-designed hardware that allow customers to run compute and storage on-premises, while seamlessly connecting to AWS’s broad array of services in the cloud.