According to the Forbes Global 2000, the top 54 telecommunications companies worldwide realized $1.5 trillion in revenue last year. While that number is certainly staggering, it paints a distorted picture of an industry that has seen flat revenues and shrinking profits over the last decade.
The good news is that the growth of telco cloud technologies like Network Function Virtualization (NFV) and Software Defined Networking (SDN) introduce key opportunities for service providers to improve their economics. By investing in telco clouds to transform their business, SPs can modernize their own infrastructure to reduce costs, streamline operations and increase service agility while at the same time creating higher margin service offerings, particularly to enterprise customers, that promise new sources of revenue growth.
Investing for future opportunities and revenue in the 5G era
With extremely high bandwidth and ultra-low latency capabilities, 5G will enable new applications and services that offer new opportunities for SPs, if they’re ready.
For example, Google recently announced that its gaming platform, Stadia, will offer 4K streaming gaming services to devices using the Chrome browser. To do this at scale, Google will need to host graphics processing unit (GPU) compute at highly distributed edge cloud environments to meet the capacity and ultra-low latency needs of the service. SPs, on the other hand, are already well positioned to host this and other services to garner new revenues with their preexisting infrastructure.
To get into the game and compete for high-margin services, SPs must invest in an agile, reliable, automated and secure telco cloud platform with high performance SDN to run virtual network functions for both their own network infrastructure as well as third party partners.
Business models for telco cloud
Service providers have many options when it comes to capitalizing on cloud era business models. The top three are connectivity, platform and digital services. The path they take will depend largely on their own long-term strategic goals and investment profile. In many cases, SPs may opt to begin as a connectivity service provider and evolve over time to a platform or digital service provider as they make further telco cloud investments to build technology, people and process expertise.
Connectivity service providers: SPs can leverage their infrastructure footprint to offer co-located, multi-tenant services to cloud providers and enterprises, who need to distribute their applications or network services to geographical locations where they have no direct presence. The need for distribution is driven by applications and services that are compute-intensive and latency-sensitive, requiring closer proximity to the end user to avoid the inefficiencies of ‘tromboning’ traffic to and from a central data center.
Platform service providers: SPs can use their telco cloud and NFV infrastructure to offer cloud Infrastructure-as-a-Service (IaaS), and a higher value Platform-as-a-Service (PaaS) through a more complete, managed virtual environment. The investment in an open-sourced, flexible and secure NFV infrastructure is required, as this is most certainly a multi-tenant environment. In addition to technology, the offering requires investment in automation technology to streamline the remote deployment and operation of a dynamic telco cloud environment.
Digital service providers: SPs who have content assets can use their own platform to develop and deliver digital services, programming and original content to the end user. In this scenario, SPs compete directly with over-the-top (OTT) streaming provides who are already profiting from cloud services and SP connectivity. Content service offerings delivered via an agile telco cloud platform can be bundled with other services, such as high-speed connections, to create a more compelling overall value proposition to consumers. Apart from helping to reduce churn, this type of service would increase competition from unfettered growth in OTT services.
Regardless of the model an SP originally adopts, every SP needs a telco cloud to support a seamless evolution from to their existing operational model to one that embraces an NFV- and SDN-based infrastructure, which can be built with flexibility to support a variety of services with a much lower cost of delivery. With the slough of new services enabled by 5G in the coming years, service providers are in a prime position to seize new revenue by embracing telco cloud capabilities that’s finally ready to deliver on years of promise.