The Great Telco Debate: How to Battle Cloud?
HALF MOON BAY, Calif. -- Rutberg Future Mobile Conference -- A breakout panel here on the future of telecom infrastructure pondered an existential question about the future of service providers and how they will battle back against the encroaching cloud providers such as Amazon (AMZN), Google (GOOGL), and Microsoft (MSFT).
"If you look at the last five years, there is a new generation of cloud providers that have come to dominate the space," said Praveen Akkiraju, CEO of SD-WAN provider Viptela. "Telcos have lost the battle of capturing enterprise workloads."
This, of course, is not a new trend. But what came to the surface in this panel was the urgency for service providers to come up with new services as their bandwidth businesses become increasingly commoditized and less profitable.
"The telcos are under huge pressure; with the advent of IP we've seen transport separated from services," said Craig Barratt, CEO, Barefoot Networks, which makes programmable chips for carrier networks. He pointed out that the move to IP means that service providers have lost voice services to the cloud -- along with many other enterprise services. "For mobile service, the service was connected to the transport. The iPhone separated a lot of value away from the carriers. The telcos are under pressure to innovate much faster because they see these Internet companies moving fastly. They will rely on new technology. The more successful ones will be like Comcast that provide more value up the stack."
Executives on the panel, which consisted of CEOs from telecom equipment supplier startups, said that service providers are reevaluating their approach to networks, including building their own equipment and partnering more aggressively with startups to regain their innovation edge.
Barratt said that the telcos will rely less on suppliers over time. "The telcos that largely rely on OEMs are trying to do things themselves. AT&T in April decided to opensource to create a community effort."
Hassan Ahmed, CEO and Chairman of mobile platform startup Affirmed Networks, said that the difference between carriers and cloud providers is that service providers once tried to create "walled gardens" -- proprietary service platforms for customers -- but customers didn't adopt them. Then Apple and Google came around and created apps stores "that people actually like." That means that the service providers "are trying to create services, walled gardens, that you actually like."
How do they do this? The consensus from the panel is that service providers are changing their model to be more oriented toward services and software. It's going to be about the telecom carriers moving more quickly to create flexible service platforms based on software -- what's known in the business as network function virtualization (NFV). The future of the industry will depend on a new platform of providers that can provide flexible platforms.
"In our conversations with providers, it is no longer about cost," said Ahmed. "That's table stakes. It's a lot more now about flexibility and services for their customers. It's about the data that the network generates and how to use it in a closed-loop fashion. That's exactly what you couldn't do in the old infrastructure."
The remaining panelist included Sanjay Uppal, CEO of SD-WAN provider VeloCloud. He believes that service providers need to be more creative in providing content and services on top of the network, pointing to the success achieved by cable companies such as Comcast.
The line between "a telco and a applications service provider is blurring," said Uppal. "Comcast wasn't a software company before but now it has [thousands] of developers to supply services. Those lines are disappearing. It's about abstraction. You need to set up an abstraction layer."
Despite the many questions, the CEOs on the panel did not appear to reach a conclusion about how the battle between cloud providers and telco ends. For example, cloud providers are not only supplying more applications but also building their own infrastructure.
"[The service providers] see the largest webscale [companies] doing things internally. It's unclear how it plays out," said Barratt. "The carriers have enormous infrastructure, which is an advantage. If they are smart, they can do a better job of addressing the broader market. It's going to be an amazing battle."
Given that the participants on the panel will depend on service provider revenue, the resolution will certainly be important for this group of startups.
Become a member. Check out Futuriom's premium analysis of technology's leading growth markets. Our latest premium report is the 50-page Ultimate Industrial Internet of Things (IIoT) Report, which covers a wide range of communications and cloud technologies that are being applied to businesses around the world to provide connectivity, analysis, automation, and optimization of a range of industrial applications. Use code "IIOT" to get a 15% discount.
