Is Reliance on Public Cloud Dangerous for Telcos?

How big a threat are hyperscale cloud computing suppliers to the connectivity service provider customers they serve? Not much, if at all, some argue. Others think the danger is significant. 

"Let's be honest, they could run the whole network for probably half the cost," said John Giere, Optiva CEO. Giere seems to be referring only to the cost of server resources, though. "Sixty-five percent of servers are bought by five companies in the world.”

The implication is that the sheer cost of compute infrastructure could be much lower than any single connectivity provider could obtain. 

As always, the analysis of total cost is much more complicated than the cost of acquiring server capacity to run software. There are personnel costs, software costs, maintenance, power and redundancy costs, for example. 

And the complex analysis arguably turns on value. Would you prefer a 50 percent return on investment on an investment that improves 5 percent of your cost structure, or a 25 percent return on investment on an investment that improves 20 percent of your cost structure? 

In other words, connectivity providers have to understand where their costs are created. 

Consider thinking about 5G-based edge computing networks. Some might see costs centered in the core network while others believe it is at the edge. As networks become more virtualized and disaggregated, those perceptions might prove equally correct or incorrect, no matter which view presently holds. 

Perhaps the biggest difference right now is thinking about return on investment in core networks, as, by definition, much network investment for edge computing must happen “at the edge.” 

source: IBM Institute for Business Value 

At some volume level, the economics of using public cloud services on an outsourced basis rather than running owned compute infrastructure might even reverse. For enterprises, at some level of volume, it virtually always makes sense to buy and own rather than lease and pay for services. 

But there are other considerations. Some might say the task of managing the network is not where the value lies. Rather, it is in the ability to tap the latest and most-advanced compute capabilities to build new services at the customer-facing level. 

If you think about the problem as a matter of operations support systems--not strictly “compute resources”--you get a glimpse of the difference between a platform to “run the network” and a platform to create new services. ” 

Simply all operations support and compute platforms exist to support business outcomes, but those outcomes also hinge on go-to-market skill.

Simply, one cannot create a customer-facing service unless the underlying network can support it. But creating a new customer-facing service relies on much more than the compute or connectivity platforms. 

Much of the effort and skill centers on domain knowledge, code-writing capabilities, marketing skill and an internal organization that does not slow down or block such development. Add capital resources, depth of ecosystem partners, a lack of distracting other issues and organizational agility to that list of requirements. 

In other words, using a hyperscale partner as the compute platform is less about the cost of managing the core network and more about  leveraging a platform for creating new services that require the use of the network, at the “my platform can support that” level. 

Such capabilities arguably apply most to services enterprise customers value, deploy and buy. That applies to capabilities enterprises themselves require for internal consumption as well as the products they create and sell to consumers. 

Perhaps the biggest connectivity provider fear is losing control of key capabilities in the network technology or customer-facing markets. That is not an insignificant risk. 

Still, in an increasingly open, disaggregated, layered ecosystem of value creation, revenue models and functions, it is hard to argue against the proposition that the hyperscalers will always be able to innovate at the platform support level faster than connectivity providers can accomplish.

Telcos used to build their own consumer devices; their own switches (special purpose computers), their own operating systems, billing systems and so forth. They rarely do so anymore. 

As the architecture of computing changes, connectivity providers simply are changing with those evolutions.