London, United Kingdom - 21 Apr 2021

The public cloud serves as the foundation for many businesses in the enterprise domain. Increasingly, telecom entities seek to partner with public cloud providers to use their compute capacity and leverage their strong network capabilities at the back end. Inexpensive compute access is the chief reason a growing number of network equipment vendors (NEVs) and communications service providers (CSPs) are now exploring public clouds as a viable complement to their telco cloud platforms. According to a new report from global tech market advisory firm ABI Research, public cloud is set to spur new growth for the telco cloud market, which is forecasted to grow to US$29.3 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 27%. Low cost of ownership, little or no implementation risk, and increased business agility and innovation are some key drivers that are propelling the adoption of cloud compute capacity in telecoms.

“Adoption of public cloud constitutes an evolutionary path on three fronts; technology evolution, operational changes, and service evolution,” explains Don Alusha, Senior Analyst, 5G Core & Edge Networks at ABI Research. “Technology evolution of the public cloud, and broader cloudification efforts, is a key enabler for a more digital telco ecosystem. Operational changes in cloud efficiencies enable CSPs to propel service convergence by intelligently fusing today’s siloed internal processes. And service evolution is the quest to enhance existing business models, which also stands to be a key reason behind the adoption of public cloud.” Communication services remain at the heart of CSPs’ business, but with public cloud as a foundation, many large Tier-1 CSPs are increasingly diversifying into ICT services. AT&T, Telefonica Tech, Verizon, and Vodafone are some CSPs that are embracing public cloud for new value creation outside of their historical (consumer) markets. 

Furthermore, platforms are going to be at the center of new commercial forays, particularly enterprise 5G, which inherently constitutes a horizontal value creation. “CSPs will capture growth if they get three strands right: 1) the intelligent connectivity to connect dispersed cloud platforms; 2) the human capital to get their workforce innovating on, working off of, and 3) tap into a cloud ecosystem that is composed of independent software vendors (ISVs) and developers; and finally, the governance to get the best out of this ecosystem and cushion its side effects. Naturally, this change will not happen overnight, even in the most progressive of CSPs. But it is vital that, in close collaboration with NEVs and hyperscalers, CSPs plant the seeds of cloud and software platforms today to create new value tomorrow,” Alusha adds.

With public cloud platforms, hyperscalers like Amazon, Google, Microsoft, and Oracle typically develop and control a homogeneous tech ecosystem. In contrast, CSPs procure solutions from many different suppliers that compete and move sometimes slightly, sometimes substantially, in different directions. “So, what does a proliferation of cloud platforms in telecoms mean for Ericsson, Huawei, Nokia, and ZTE? It means that the successful vendor of the future will need to shoulder much more of the financial risk of CSPs adopting their products and services,” says Alusha. They need to invest in CSPs’ success by going beyond merely installing and integrating capabilities. They need to guide CSPs, and their enterprise prospects to consume capabilities they have at their disposal – sometimes even doing it for them. 

The exact role that public clouds will play in how we shape the telco system going forward remains to be seen. At the same time, the industry at large must have the willingness to stake future growth and success on the ability to make commitments today that may not pay off until years into the future. “In other words, new-growth strategies should begin with a high tolerance for risk and what we do not know over cloud and associated economic models rather than what we do, for successful strategies must be built upon a degree of unpredictability, not in spite of it,” Alusha concludes.

These findings are from ABI Research’s Public Cloud Platforms in Telecoms application analysis report. This report is part of the company’s 5G Core & Edge Networks research service, which includes research, data, and ABI Insights. Based on extensive primary interviews, Application Analysis reports present in-depth analysis on key market trends and factors for a specific application, which could focus on an individual market or geography.