Telcos Vs. Cloud Players: Can Edge Computing Change The Competitive Dynamics?

November 27, 2017
cloud players market cap

Cloud players continue to set record revenues and profits while the telcos grapple with stalled revenues. The market cap of three to the top cloud players – Amazon, Google and Microsoft – stand at around $1.9 trillion while the top 4 US telcos – AT&T, Verizon, T-Mobile and Sprint, stand at under $500 billion. The telcos have lost the ‘Cloud 1.0’ battle to the OTTs. But, is there a way for the telcos to be more competitive? More specifically: can edge computing provide the telcos a competitive advantage over the cloud players?

Edge Computing

This was the topic of my presentation at this year's Fog World Congress. In my presentation, I argued that in “Cloud 2.0” the telcos have the opportunity to challenge the hegemony of the cloud players through edge computing. Here, I consider edge, fog or mist computing to be fundamentally the same: conceptually, they are all about pushing the processing and storage closer to the user or device. This improves the response of the application (latency) and reduces the cost of transporting data to the cloud. In effect, the economics of edge computing trade off additional cost of distributed compute and storage at the edge for backhaul cost reduction and performance improvement.

Edge computing is not new. Focusing on wireless networks, there were many attempts in the past which have mostly failed. For example, video caching is a successful edge application that failed in the wireless context. Why? Because caching solutions broke the topology of the technology standards. Moreover, there were no incentives for the operators to deploy caching including the ability to monetize it.

Pulling the Core and Edge Closer

But going forward that could change if operators decide to re-architect their networks by distributing the core network, placing it closer to the user. Virtualization allows operators to quickly deploy a core anywhere and to scale it at will. Edge computing could be deployed closer to the user without breaking the network topology. This is a major advantage that the telcos have over the cloud players – but they have not been able to capitalize on it. By pushing the core closer to the edge, and through virtualization of the network, operators could capitalize on this advantage.

Just as the core could be pushed down closer to the edge, the radio access network could be pulled up closer to the core. This is possible with Cloud RAN which centralizes and virtualizes non-real-time functions for agility and flexibility.

mobile network transformation

Advantages and Challenges

To carry forward with this transformation, telcos could leverage their central offices, many of whcih are vacant. Projects such as CORD and M-CORD focus on virtualizing the central offices which could serve as a hosting location. While the transformation to a distributed core and centralized RAN is yet to happen, competitive pressures will press towards that architecture. Telcos could have the opportunity to lead in the distributed cloud business: “Cloud 2.0.”

To telcos have significant challenges in undergoing this transformation. For example, one particular challenge is software capabilities. The telcos have to transform their workforce and processes to accommodate the requirements for software developments. This is an area that’s inherent to the DNA of the cloud players but is alien to telcos. The cloud players achieved a level of complexity and efficiency that the telcos need to come close to.

distributed cloud

A Role for Blockchains?

In the midst of this potential transformation, we at the Xona Partners team have been researching how blockchains could play into this mix. Fundamentally, blockchains is a distributed database (or ledger) which conceptually fits the distributed cloud architecture.

Rearchitecting telcom networks to run applications close to the user and is major development that require significant investment. This transformation could be achieved with existing LTE networks. I think this is the essence of “5G." It is a much worthy and financially rewarding objective than inventing a new air interface!

Frank Rayal is Partner at Xona Partners. He advises technology companies and investors on technology trends, market positioning and strategy, and M&A planning.

Frank Rayal

Overlay Init

Curated By Logo