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With the rise of advanced Artificial Intelligence (AI) decision analytics, lightning-fast 5G networks, and the rapid pace of digital transformation, telcos have an incredible opportunity to join the ranks of hyperscalers.

Telcos must acknowledge this and begin organizing their massive volumes of existing data. Whilst public cloud providers and today’s hyperscalers have provided platforms and services specifically tailored to them, service providers (SPs) must still improve their cloud capabilities whilst learning, adapting, and creating unique cloud solutions to exploit their massive edge real estate. Relying solely on a hyperscaler cloud for business agility without gaining the necessary skills is dangerous; like jumping out of a plane without a parachute.

Despite being an integral part of our contemporary societies and economies, telcos have begun to face difficulties in generating profits. This is mainly due to rising pressures on revenues, margins, and growing as well as changing customer expectations. To overcome this situation and become profitable again, telcos must:

  • Embrace AI: Rather than conducting sporadic AI experiments for decision analytics, adopt a strategic approach to transform all decision analytics by leveraging AI. This requires a top-down imperative from CXOs. Across the telco value chain, AI-driven decision analytics has the potential to increase revenue and reduce costs by a few percentage points.
  • Rethink the tech stack: Adopt cloud for elasticity, open source for agility, and incorporate best practices from hyperscalers such as Google, Uber, and GoJek.
  • Innovate with the Internet of Things (IoT):  given their proximity, access and often control over a variety of assets and physical infrastructure, telcos are uniquely placed to lead the development of IoT solutions by not only utilising their vast amounts of data, but, crucially, integrating AI and other digital services.  
  • Extract value from data: ensuring data and features are well-catalogued and searchable, whilst ensuring that AI infrastructure and services, such as image recognition, speech processing, forecasting, and deep learning are easily accessible is imperative in attracting and retaining data science talent.
Changing environment

Over the past decade, hyperscalers have been perfecting their cloud technologies to create a global cloud system. They are now trying to expand their platforms to the network edge using the high bandwidth and low latency of 5G to increase revenue and enter new markets. However, because they do not own edge real estate, they rely heavily on partnerships with service providers (SPs). While many top-tier SPs have invested in cloud transformation, their progress has been inconsistent, and few have gained enough expertise to manage a large-scale telco and edge cloud deployment. As a result, several prominent SPs in North America have partnered with hyperscalers to accelerate the deployment of data centres and edge cloud services.

Growth through collaboration or competition?

Telcos interested in exploring the move to the new market and opportunities associated with it, must articulate a clear and coherent strategy to be successful. Broadly, there is the option to closely collaborate with the existing actors or use own USPs to outright compete.  

Developing Successful Partnerships

As telco operators continue to partner with hyperscalers, concerns have been raised regarding the impact on their critical workloads and services. SPs are cautious about these partnerships, questioning their mutually beneficial nature and whether they only benefit hyperscalers whilst eroding operator control and profits. Despite this, there are still SP benefits to be gained from these partnerships by taking a strategic approach while safeguarding their long-term interests.

To build for success, operators must develop a hybrid, multi-cloud ecosystem that combines private and multiple public cloud services. By using agile approaches to networks such as for instance software-defined networking, strong security, and scalable overlay tunnelling, operators can create a cloud-neutral architecture that can distribute workloads between and across the hybrid multi-cloud. This leads to optimized cost, improved performance and a reduction in latency, and data sovereignty requirements, reduced vendor lock-in risk, increased service availability, and competitive leverage.

Although integrating each public cloud requires initial investment and integration work, hybrid multi-clouds give SPs the freedom and leverage to manage these challenges. In addition, each hyperscaler cloud shares a common core of open, cloud-native technologies such as containers, microservices, Kubernetes, and open-source projects that can enhance capabilities and functionality. By investing in their cloud-native telco and edge clouds, SPs can gain hands-on experience and knowledge to build a cloud-neutral fabric that can easily integrate into the vast public cloud ecosystem, allowing them to control services, costs, and their bottom line.

Taking the fight to existing hyperscalers

Telcos have reasons to look ahead with confidence. SPs are well placed to create new revenue streams through direct sales channels and flexibility in their network infrastructure allowing for tailoring to changing customer needs. Increased proximity to enterprise customers will increase levels of trust as well as insights into their evolving value chains and use cases for new products and services. Another key advantage which telcos enjoy is their strategic positioning at the POP or point-of-presence paired with operational know-how. That draws substantial investments from any enterprise that deploys and uses services at the network edge.

However, to compete with traditional hyperscalers, SPs must continue to improve their own cloud capabilities and develop unique cloud solutions that exploit their extensive edge real estate. In the end, despite these upsides, competing head-on may prove to be a risky strategy given hyperscalers’ levers across most industries.

In summary

Relying solely on hyperscaler clouds to achieve business agility without mastering the necessary skills is likely to leave telcos exposed. However, attempting to aggressively compete is unrealistic. To increase market share, generate revenue, and participate in the expanding cloud economy, SPs must adopt a pragmatic dual strategy; building in-house cloud-native platforms, technologies, along with the expertise to protect their interests and maintain control, whilst developing balanced and mutually beneficial partnerships with hyperscalers to achieve both short-term and long-term objectives such as strengthening their own and product portfolio. Telcos and hyperscalers will form a unique relationship in which everyone is a collaborator, competitor and customer.

Duncan Roberts

Senior Manager, Cognizant Research 

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Marcin Remarczyk

Senior Director, UK&I, Cognizant

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