Cloud hyperscalers are collectively investing tens of billions of dollars to build infrastructures encompassing data centers, monitoring systems, and software. As the world's largest cloud providers create a concentrated market for an invaluable service, it opens communications service providers (CSPs) who don’t take action up to potential challenges. While concentrated cloud services create potential setbacks, CSPs can only evolve their business models and unlock new monetization opportunities by embracing the cloud – making it a critical factor to success.
COVID-19 has increased and exacerbated existing challenges for CSPs, such as increases to capital and IT operating expenditures and surges in network demand. Thus, it is critical for CSPs to partner with hyperscalers going forward, especially for their core and business application cloud. Today, most CSPs operate in a private cloud model. But as they determine their cloud evolution strategy, it will be important to understand the strategic implications of their choices, whether it’s cost, performance, or longer-term competitiveness. As a result, CSPs must determine from a regulatory and mission-critical perspective whether to take a public or private cloud approach, for what parts of the network, and when.
A critical stage of opportunity for CSPs
Despite these challenges, the changes to our current models brought on by business and technology disruptors create a tremendous opportunity for CSPs. At the core of this is digital transformation, which concurrently is hasting many companies’ process of deciding on a cloud provider.
A primary part of digital transformation includes the shift to the cloud, enabling CSPs to expand and scale connectivity to connect everything and everyone, and bridge the digital divide. As cloud-native network functions will evolve, CSPs will be positioned to deliver 5G connectivity and services at scale. Deploying services and products on the cloud can help CSPs meet consumers’ needs, and lead to new and expanded 5G use cases such as telemedicine and eSports.
Furthermore, CSPs are deploying 5G at a faster rate than any of their predecessors, with the goal to bring new customer experiences and help enterprise customers shift to Industry 4.0. CSPs who want to realize these capabilities must evolve their monolithic, static core to a disaggregated, dynamic core. This will enable broader system innovation, allowing for continuous software updates, rapid scaling, and greater resiliency and security. With this in mind, it's a critical time for CSPs to deploy their core networks on hyperscalers' public clouds to enable faster time-to-market, investment agility, swifter operations, and new business opportunities. That way, they can transfer cloud complexity to the cloud providers and instead focus on service differentiation while simultaneously benefitting from the hyperscaler’s analytics expertise and ecosystem innovation.
Opportunities and risks of CSP x hyperscaler partnerships
For CSPs, the goal is to increase revenues beyond traditional connectivity. While many have the credibility, capabilities, and relationships needed to provide value in the coordination stage, some argue that much of the work still needs to be done. Specifically, significant investment is required to build the right capabilities, skill sets, processes, and operational models to grow revenue. The reality is, many operators lack the resources or management bandwidth to serve all industries. As a result, operators need to strategically choose which target industries they want to hone in on, what they can realistically achieve there, and who they should partner with, such as hyperscalers, to succeed in that space.
Of course, each strategic decision comes with its opportunities and risks. CSP leaders aim to find the middle ground of a good partnership without exceeding value.
As for opportunities, one key benefit of hyperscaler partnerships includes expediting time to market for new services. These cloud providers have scaled capabilities and tools, meaning a partnership could enable the development of software-centric use cases. CSPs can also gain access to the developer ecosystem and the community, as well as enhanced software skills and capabilities, particularly in AI/ML. Moreover, hyperscalers come with notable market strength and public cloud offerings, which is quickly becoming a new standard.
For risks, CSPs could fall down the rabbit hole of simply providing traditional connectivity and managed services. Meanwhile, the hyperscalers develop the higher-value software and computer-centric aspects of the services. There’s also the risk of hyperscaler dependency, leading CSPs to lose grasp over their distinct offerings and capability to evolve core network functions. This can lead to vendor lock-in, particularly as CSPs are evolving their network functions and deploying them over the cloud.
The time to collaborate is now
As we know, Darwinism is the theory of evolution by natural selection, which poses that those who can best adapt to their environments have higher chances of survival. This principle also applies to CSPs: the rapid digitalization of technology and society forces CSPs to adapt quickly – or die.
The cloud providers see this as a significant opportunity within the telecoms industry, with CSPs being both customers and partners. More practically, as CSPs partner with hyperscalers, it’s crucial to clearly outline ownership of data and define end-to-end service level agreements (SLAs) that determine who will be responsible for what and how issues will be resolved.
It is high time CSPs rethink their possibilities, beginning at the core: their infrastructure. Embracing a cloud-native approach to enable an elastic infrastructure is vital for scaling and reducing costs with automation. CSPs should also plan to leverage cloud-native innovations and their principles of microservices architecture, openness, and DevOps to ensure 5G success.
Moreover, CSPs can grow topline revenue by leveraging these innovative technologies and as-a-service models to swiftly bring new offers to market and unlock new revenue streams.
Lastly, CSPs should leverage all of this digital, data, and workforce transformation to revive their market positioning with customers. Improving customer experiences through data-driven customization and extending services with deeper data analytics and AI will be the key to achieving long-term success.
Liron Golan is Portfolio Marketing Director at Nokia.
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