Monday, March 9, 2020

Is Google Mobile Edge Cloud Another Dumb Pipe Outcome?

Google Cloud says it is helping telecommunications companies monetize 5G as a business services platform, in part by prototyping and developing edge computing use cases in retail, manufacturing and transportation. 

The Global Mobile Edge Cloud program aims to create a portfolio and marketplace of 5G solutions built jointly with telecommunications companies; an open cloud platform for developing these network-centric applications; and a global distributed edge for optimally deploying these solutions, Google Cloud says.

A collaboration with AT&T is part of that effort, where AT&T supplies the network while Google Cloud supplies the computing functions. 

That might strike you as yet another instance of telcos supplying connectivity (dumb pipe) while somebody else supplies the applications. Realists might say that is about as good as it gets, in many cases.

A few tier-one service providers might hope to create platforms or services and applications for vertical markets. Already, one can see that in prior efforts to diversify into applications and platforms. Between 2017 and 2018, for example, AT&T significantly added non-telecom revenues. 

That is crucially important for connectivity providers in developed markets, as organic growth for connectivity services is low to negative. 

“For many operators, particularly those in developed markets, non telecoms services are the only source of growth,” GSMA Intelligence says. In other words, moving “up the stack” or “across the ecosystem” might well be the only driver of significant revenue growth. 

That is a somewhat contentious statement, as financial analysts virtually always prefer that connectivity providers “stick to their knitting” and perceived core competencies, and avoid venturing further afield into new lines of business outside the core. But in a slow-growth to no-growth environment, that could very well lead to organizational decline. 

“The biggest challenge will be finding the right balance between defending core operations and exploring opportunities beyond the core,” GSMA Intelligence argues. That is an ever-present challenge for virtually all organizations facing pressure on their core revenue models. The overwhelming tendency is to spend energy and resources defending the existing business, even if that means the future is neglected. 

The Google Cloud initiative might be a reasonable compromise. It allows mobile service providers to create new value for apps and use cases that require use of 5G. And to the extent that 5G is the natural successor to 4G, it defends the legacy revenue stream (mobile service and mobile internet access). 

Still, neglecting the “up the stack or across the ecosystem” initiatives could be challenging. In 2025, for example, GSMA Intelligence predicts that connectivity services will represent about five percent of total revenues for internet of things spending. Fully 67 percent will be generated by applications, platforms and services, while 28 percent will be created by professional services. 

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