Could Edge Computing Facilities Eventually Help Telcos Become More Asset Light?

The fixed network communications business never will be asset light. On the other hand, the long-term business model almost certainly benefits from becoming less asset intensive, when possible, as this helps lower sunk costs and reduces capital spending.

Edge computing raises a couple of interesting questions, in that regard. Assuming that the best option for most telcos is not to become "edge computing as a service" providers, but instead focus on becoming neutral host providers of edge computing facilities (racks, security, air conditioning, cross connect), new issues around recurring revenue, profit margins and asset creation arise.

At least in principle, edge computing colocation could be a logical line extension for many tier-one connectivity providers. The investments might be incremental, and produce additional revenue.

The other question is whether the edge facilities business could be positioned as an asset for eventual sale, as has been the case for cell towers.

Cell towers and stand-alone data center facilities were easy to separate from the rest of the connectivity business, and could be sold.

That is not so easy when edge computing racks and infrastructure are inside telco buildings and real estate, unless those facilities have been nearly entirely replaced as elements of the communications infrastructure. 

On the other hand, network virtualization could be a way for telcos to position much of their former central office infrastructure as non-core assets, though they might still need to become tenants, if most local central offices were sold. Much as they sell owned towers and then become tenants, the same could, in principle, be done with most central offices once virtualization is possible. 

At least for fixed network operations, those former CO locations would still be needed as aggregation points for the local access network. 

If an entire local access business cannot or should not be sold, the question might then be asked: how much of those physical “access” assets could be positioned for sale? Generally speaking, COs and access networks have been considered mission critical assets, with connectivity providers benefiting from ownership of those facilities. 

So there are some possible new questions. 

To what extent does edge computing infrastructure, like the data center business, create recurring revenue, and to what extent might such assets become mission critical for connectivity providers? 

Even if mission critical, could such assets be packaged for possible eventual sale, using the same sale and lease-back mechanisms previously used for cell towers? 

To the extent that edge computing is integral for connectivity service operations, to what extent could those functions be supplied as a “buy rather than build” input? 

Those could become more interesting discussions at some point, as most service providers seek to become a bit more asset light, if only to reduce the sunk costs of their businesses.