A Market in Transition: Telcos Morph into Techcos

Telcos are transforming by integrating technology services into their enterprise offerings to compete with cloud and network service providers.

telcos transition to techcos
(Credit: Brain light / Alamy Stock Photo)

History is littered with comebacks like the Rebel Alliance’s win over the Galactic Empire in Return of the Jedi, the Continental Army’s win over the Brits after recouping for the winter in Valley Forge, and the Boston Red Sox roaring back from three down to break the dreaded Yankees’ Curse of the Bambino to win the 2004 American League Championship Series.

Soon, we might be adding a comeback of a different type that is very relevant to enterprise IT managers. Specifically, telcos are shifting to what Omdia calls a “techco” model in their battle with cloud and network providers to serve enterprise customers.

There are multiple reasons for this reinvention. Many telcos are incurring high costs deploying 5G and fiber networks. Additionally, many find that there is low revenue growth when offering only communications and connectivity services. As such, some are reinventing themselves as techcos that provide technology services, primarily to enterprises.

“A telco that has adopted the techco model successfully is a software-based organization that offers services in areas such as AI, big data, the cloud, and IoT,” says Matthew Reed, Chief Analyst of Service Provider Strategies at Omdia. He notes that techcos often position themselves as partners that can help enterprises digitally transform.

Techco model helps telcos regain old dominance  

For decades, telcos essentially delivered all voice, data, and connectivity services to enterprise organizations. Their offerings over the years included frame relay, T1 and T3 lines, ISDN, a variety of switched circuit services, and more.

Internet service providers upended everything, with many offering connectivity services. And the introduction of virtual private networks (VPNs) let enterprises bypass the telcos and form their own secure networks. They could connect branch offices and run all their voice and data traffic over the Internet, eliminating the cost of long-haul carrier circuits.

Telcos took another hit when cloud providers emerged. Many of the major providers started offering network and infrastructure services such as Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and, more recently, Network-as-a-Service (NaaS).

Now, telcos are fighting back. A recent Omdia study assessed the efforts of 12 leading telecom service providers in their transition towards the techco operator model. The study found that many are adding advanced technology services to their enterprise offerings.

According to the study, China Mobile leads the market due to the strength of its high-speed broadband platform and new AI and security capabilities, as well as an expanded portfolio of enterprise digital services. Other leaders in the field include NTT, SK Telecom, Telefónica, and AT&T.

A glimpse at possible new techco services

One area in this transition to techco that is getting growing industry interest is making satellite services more mainstream.

For years, satellites were considered a last resort for communications services due to their high cost. Several things have changed that are leading telcos and others to reconsider.

One factor is that there is increased demand for global communications and networking services everywhere. That is something only satellites can do. Another factor is that satellite ground systems, which are notoriously proprietary and have been mostly analog for decades, are being modernized. Many providers are moving to IT infrastructures, using new service orchestration tools, automating operations, and embracing telecommunications industry standards.

Greg Quiggle, Senior Vice President of Product Management at Kratos, recently discussed this change in a MEF blog. He noted that standards like Carrier Ethernet play a critical role in enabling satellite and telecommunications networks to converge and integrate more easily.

“By making satellite networks like any other access network technology through Carrier Ethernet, telcos and communication service providers can deliver a standard portfolio of enterprise services using satellite, just like when using fiber or cellular," he said. Telcos can take advantage of this by blending satellite services with their own services to offer SD-WAN and other IP services.

This is a trend to note for the future. The analyst firm Analysys Mason believes the convergence of satellite and telco services will give telcos the footing to compete in what will be a $146 billion market in 2032.

Leveraging the cloud to enhance telco services

While cloud providers have taken business away from telcos over the years, some telcos are looking to leverage the cloud to enhance their core technology services.

A recent example of this is an announcement in early May by telecom provider O2 Telefónica of the launch of its 5G Cloud Core. The new 5G core network is built entirely in the cloud, using equipment from Nokia and services from Amazon Web Services (AWS). The company claims that by using the strengths of the AWS infrastructure, enterprise customers will get a better network experience on the provider’s 5G network.

This type of partnership between telcos and cloud providers is expected to grow rapidly. A recent study by Juniper Research found telco operators will invest $26 billion in cloud services this year, with those expenditures growing to $65 billion in 2028. 

While this might not exactly match Omdia’s techco concept, Juniper calls this market telecommunications cloud, which refers to the implementation of cloud technology, services, and architecture in a telco’s core networks.

A final word

Anytime choice in a market expands, the customers (in this case, enterprises) gain an advantage. They can shop around and demand lower prices and better services. 

Whether telcos morph into techcos or telecommunications cloud providers, the impact on enterprises is the same. Namely, enterprises will have access to more and newer connectivity, networking, and other service options in the years to come.

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About the Author(s)

Salvatore Salamone, Managing Editor, Network Computing

Salvatore Salamone is the managing editor of Network Computing. He has worked as a writer and editor covering business, technology, and science. He has written three business technology books and served as an editor at IT industry publications including Network World, Byte, Bio-IT World, Data Communications, LAN Times, and InternetWeek.

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