How Cloud Technologies Are Reshaping Telecom Networks
LightCounting Assesses the State of ‘Telco Transformation’ and Its Impact
LightCounting Market Research is publishing a new report on the impact of cloud services and technologies on Communications Service Providers. The report describes how traditional telecom service providers are adopting cloud servers, switching, storage, and networking hardware, along with Network Functions Virtualization (NFV) and Software-Defined Networking (SDN) concepts to benefit their networks and operations. The impact of this change will be significant, both on CSPs themselves, and on their supply chain partners.
The dramatic success of internet content providers (ICPs) like Google, Microsoft, Amazon, and Facebook in the last decade is the driving force prompting CSPs to undertake this historic change. The ICPs are threatening CSPs directly by offering substitutes for voice, messaging, and other services, but have also supported the development of cloud-based technologies, which now offer CSPs means to transform their networks.
The adoption of cloud technologies by CSPs is a key inflection point in the evolution of telecom networks and services, and a number of early-movers have already consigned their traditional telecom networks - based on proprietary platforms and software - to the dustbin. These CSPs are the first to use ‘open’ software and hardware - developed collaboratively by multiple companies - to transform their central offices into data centers and their networks from hardware to software-based.
This represents a marked change from the past, when CSPs waited two to three years for standardization bodies to complete their work before embracing new technology. Now CSPs are adopting software releases that are upgraded twice or more a year, releases that are, by definition, still evolving. Another notable change is that the CSPs are being assisted by the ICPs and open-source communities, both of which have a vested interest in their success.
Network transformation is risky; many of these projects will take years to complete and cloud technologies will need to co-exist with legacy networks for some time to come. Despite the high risk, however, leading CSPs in China, Europe, Japan and North America are committed to making this transformation. Most smaller CSPs are waiting and watching the leaders closely, to learn from their mistakes and identify winning strategies, although a few of these are also adopting cloud technologies for particular use cases.
Competition among the CSPs in a region sets the pace of innovation and the risk level that companies are willing to tolerate. Because of this, regional differences exist in the cloud-transformation approaches taken by the CSPs, especially in timelines and priorities. Figure E-1 shows LightCounting’s ranking of top-tier CSPs in terms of their tolerance for risk and timing of their transformations.
North American CSPs, led by AT&T and Verizon, started transforming their networks several years ago and have the most ambitious targets in completing many of these projects in the next two to three years. AT&T has set the target of transforming 75% of its network by 2020. Verizon appears to be the CSP most open to taking risks in the form of restructuring, divesting parts of their business, acquiring content and IoT companies, and starting new ventures. Verizon currently has a debt-to-equity ratio of almost 8 - the highest among the large CSPs. AT&T is more financially conservative, but took an early lead in cloud transformation, starting its first SDN projects back in 2007. AT&T’s latest acquisition of the Time-Warner media business builds on its DirecTV acquisition, and solidifies its ambition to become an entertainment company. All the US-based CSPs are likely to benefit from a reversal of the net neutrality rules promised by the Trump administration, adding even more optimism to their future plans.
Figure E-1: Leading CSPs embrace of cloud transformation
Chinese CSPs are at the lower end of the risk tolerance scale among the top-tier. Yet when they adopt a new technology they can surprise the world with the large scale and rapid pace of their deployment, as witnessed with 4G LTE and FTTx. China Mobile, China Telecom and China Unicom are committed to cloud transformation, but some of their deadlines extend to 2025.
Some leading European-based CSPs face different challenges. Telefonica and Vodafone own operations in dozens of countries and have many additional partner CSPs. Using SDN and NFV to consolidate the operation of these networks is one of the top priorities of these conglomerate groups. Transforming their disparate networks will require more time and patience, but the more complex problem will also bring benefits like how such CSPs work with vendors and the sophistication of their resulting end-to-end SDN-NFV platforms.
NTT is the leader among all the CSPs in building a global cloud network. Having a global footprint of data centers could prove a strategic advantage for CSPs that want to compete more directly with ICPs. SK Telekom is also embracing cloud transformation. The company announced an investment of $9.2 billion over three years for deploying future network technologies and fostering development of a new ecosystem to support cloud transformations of many of its industrial partners in South Korea.
Traditional telecom equipment and optical module makers also face dramatic changes due to the adoption of cloud technologies by CSPs. John Donovan, Chief Strategy Officer and Group President of AT&T Technology and Operations, put it this way in a recent interview: “We are in a technology evolution that has seismic impacts on our vendor community.”
The full version of this report (70+ pages) goes on to discuss the impact of cloud transformation on network equipment makers and the new opportunities presented to optical module vendors, as well as our recommendations for communications service providers. It also contains additional detail and discussion of cloud transformation, a comparison of CSPs and ICPs, and profiles of individual CSPs and ICPs, with related financial information. The report will be available to LightCounting subscribers starting March 1, 2017 at: https://www.lightcounting.com/login.cfm.
RECENTLY PUBLISHED REPORTS:
- Impact of Cloud Services on the Telecom Industry February 2017
Integrated Optical Devices January 2017
Active Optical Cables and Embedded Optical Modules December 2016
Quarterly Market Update Report December 2016
Next Generation Access Optics November 2016
High-Speed Datacenter Optical Interconnects, September 2016
Quarterly Market Update for Q2 2016, September 2016
Mega Data Center Optics March 2016
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LightCounting is a leading optical communications market research company, offering semiannual market updates, forecasts, and state-of-the-industry reports based on its analysis of primary research with dozens of leading module, component, and system vendors as well as service providers and other users. LightCounting is the optical communications market’s first choice source for the accurate, detailed, and relevant information necessary for doing business in today’s highly competitive environment. For more information, visit: www.LightCounting.com or follow us on Twitter at @LightCounting.