Executive Briefing Service
Telco Cloud
Executive Briefing
THE TELCO CLOUD
MANIFESTO
STL Partners believes that telco cloud is a crucial enabler for operators’
success in the Coordination Age. In this manifesto we explain why.
Yesmean Luk, Senior Consultant & Telco Cloud Practice Lead | yesmean.luk@stlpartners.com
David Martin, Associate Senior Analyst | david.martin@stlpartners.com | March 2021
THE TELCO CLOUD MANIFESTO | MARCH 2021
Executive Summary
At STL Partners, we see a clear rationale for telco cloud beyond more flexible, agile, cost-effective,
OpEx-centric networks and operations. Telco cloud is also about enabling further telecoms
differentiation and growth through application and use case-specific networking, and ultimately about
creating technology, practices and organisations fit for the Coordination Age.
Many telco operators today are grappling with whether they should be driving progress in telco cloud
more proactively or wait for the industry to coalesce (with industry standards, maturity of vendor
solutions). The key questions that telcos should ask themselves are:
1. What do you see as your core competencies and what value are you trying to provide as part of
that?
2. Recognising your key strengths and limitations, how willing are you to take risks in driving
innovation yourself, rather than letting competitors and potential disruptors steal the lead?
Choosing a more cautious approach and failing to innovate is in itself a significant strategic risk and
telecoms operators should recognise that moving too slowly can also be a risky strategy, and that
their existing business model is under greater threat than they realise. This includes the risk of not
realising who the competition is and shaping up to them, as well as the dangers of not being able to
capitalise new opportunities arising from 5G.
STL Partners is committed to working with executives who share a vision for the industry that involves
greater agility and innovation, a bigger role for the network and operators, and believe that
implementing telco cloud is a key foundation of success.
What next?
In our forthcoming research we will continue to explore how operators can navigate the shifting
telecoms landscape to successfully adopt telco cloud. Upcoming reports include:
• Telco Cloud Tracker, North America update: SD-WAN drives new growth
• Netcos and servcos: New ways of slicing the network pie
• Hyperscalers in telecoms: What do the hyperscalers want, and how should telcos partner with
them?
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Table of Contents
Executive Summary ............................................................................................................................................... 2
Telco cloud: A key enabler of the Coordination Age ........................................................................................ 4
The Coordination Age is coming ..................................................................................................................... 4
How telecoms can define a new role ............................................................................................................. 4
Telco cloud: The growth enabler for the telecoms industry .......................................................................... 5
Telecoms revenue growth has stalled, traffic has not ................................................................................ 5
Telco cloud: A new approach to the network… ............................................................................................. 6
…a fundamental shift in what it means to be an operator… ....................................................................... 6
…and the driver of future telecoms differentiation and growth ................................................................. 7
Realising the telco cloud vision ........................................................................................................................... 8
Moving to telco cloud is challenging .............................................................................................................. 8
Different operator segments will take different paths ................................................................................ 9
Table of Figures
Figure 1: The role of telco cloud in the Coordination Age .............................................................................. 6
Figure 2: Challenges that slow down the ability to realise the telco cloud vision ...................................... 8
Figure 3: The old versus new telco models ....................................................................................................... 9
Figure 4: Outline of three Telco Cloud adoption models .............................................................................. 10
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THE TELCO CLOUD MANIFESTO | MARCH 2021
Telco cloud: A key enabler of the Coordination
Age
The Coordination Age is coming
As we have set out in our company manifesto, STL Partners believes that we are entering a new
‘Coordination Age’ in which technological developments will enable governments, enterprises, and
consumers to coordinate their activities more effectively than ever before. The results of better and
faster coordination will be game-changing for society as resources are distributed and used more
effectively than ever before leading to substantial social, economic, and health benefits.
A critical component of the Coordination Age is the universal availability of flexible, fast, reliable, low-
latency networks that support a myriad of applications which, in turn, enable a complex array of
communications, decisions, transactions, and processes to be completed quickly and, in many cases,
automatically without human intervention. The network remains key: without it being fit for purpose
the ability to match demand and supply real-time is impossible.
How telecoms can define a new role
Historically, telecoms networks have been created using specialist dedicated (proprietary) hardware
and software. This has ensured networks are reliable and secure but has also stymied innovation –
from operators and from third-parties – that have found leveraging network capabilities challenging.
In fact, innovation accelerated with the arrival of the Internet which enabled services to be decoupled
from the network and run ‘over the top’.
But the Coordination Age requires more from the network than ever before – applications require the
network to be flexible, accessible and support a range of technical and commercial options.
Applications cannot run independently of the network but need to integrate with it. The network must
be able to impart actionable insights and flex its speed, bandwidth, latency, security, business model
and countless other variables quickly and autonomously to meet the needs of applications using it.
Telco cloud – the move to a network built on common off-the-shelf hardware and flexible
interoperable software from best-of-breed suppliers that runs wherever it is needed – is the enabler
of this future.
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THE TELCO CLOUD MANIFESTO | MARCH 2021
Telco cloud: The growth enabler for the
telecoms industry
Telecoms revenue growth has stalled, traffic has not
Mobile telephony and fixed and mobile broadband means that telecoms operators have enjoyed 20
years of strong growth in all major markets. That growth has stalled. It happened in Japan and Korea
as early as 2005, in Europe from 2012 or so and, market by market, others have followed. STL Partners
forecasts that, apart from Africa, all regions will see a compound annual growth rate (CAGR) below
3% for both fixed and mobile services for the next three years. Globally, we forecast a CAGR of less
than 1% per annum globally. This amounts to a decline in real terms.
The telecoms industry’s response to this slowdown has been to continue to invest capital in better
networks – fibre, 4G, 5G – to secure more customers. Unfortunately, cost leadership is proving hard
to achieve as competitors also upgrade their networks and the next ‘G’ becomes the new normal.
Networks have become commoditised as value has shifted to the network-independent or network-
neutral services that run on them.
In other words, the advantage that telcos had when only telecoms services could run on telecoms
networks has gone: the defensive moat from owning fibre or spectrum has been breached. Value
comes from service innovation not from capital expenditure on the network. The proof of this is that
seven internet players (Google, Amazon, Microsoft, Alibaba, Facebook, Tencent, and Apple) generate
around 35% of the revenue generated by 165 listed operators but have a bigger combined market
capitalisation! This is because the capital markets believe that revenue and profit growth will accrue
to these service innovators rather than telecoms operators.
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Figure 1: The role of telco cloud in the Coordination Age
• Shift from capex-intensive to more opex-
based model, ability to redeploy resources
A new more easily
approach
• Increased network flexibility and visibility
to the
network • Greater automation and control:
ubiquitous ability to monitor, optimise and
modify systems
Telco cloud
• Cloud business practices and platforms
A
• Building the innovation flywheel for more
fundamental agile product/service development
as a growth enabler in shift in the
• CI/CD pipelines, DevOps model, fast pivot
the Coordination Age telco model
• Partnership co-creation and enablement
• Enabling new B2B2X business models
A driver of • Providing a more accessible,
programmable and instructible network for
future
customers and ecosystem partners
telecoms
growth • Network enabled services: Greater
integration between the network and
applications that run over it
Source: STL Partners
Telco cloud: A new approach to the network…
STL Partners has long argued that operator network-driven capital expenditure is not the means to
growth. Instead, operators should shift resources towards operating expenditure which can be more
easily redeployed where it is needed – proportionally more opex would enable operators to change
direction quicker rather than being caught in ten-year capex cycles centred on the latest network
generation.
Telco cloud is central to this shift to operating expenditure. We are not suggesting that network capex
disappears. It is, and will, remain an integral part of the telecoms financial and operational model. But
the implementation of a software-defined network enables operators to negotiate use-based licensing
from vendors – they can enjoy the same reduction in risk and increased flexibility from their suppliers
that other enterprises are seeking in their ICT solutions.
…a fundamental shift in what it means to be an operator…
The move to cloud native represents a fundamental shift in what it actually means to be an operator
in the Coordination Age. It lies at the heart of a broader business model change in terms of how telcos
operate, not only from a technology standpoint but more importantly in terms of culture, processes,
decision-making, incentives and the overall organisation.
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The new normal within the industry will be about how effectively operators can adopt continuous
integration-continuous deployment (CICD) pipelines and build an innovation flywheel. Telco cloud is
not just about technology, it’s about changing the operating model, moving to a DevOps/CICD model
that enables operators to pursue agile product/service development. Without this, the new flexible
Telco cloud infrastructure is pointless because customers will not pay more for connectivity enabled
by a Telco cloud network: they will only pay more for additional services. And these additional services
require operators to move beyond connectivity and match the rapid innovation achieved by the
internet players and other technology companies.
…and the driver of future telecoms differentiation and growth
Telecoms operators often talk about moving beyond connectivity: Telco cloud is the means of
enabling this because the network behaves like and integrates with the applications that run on it.
Operators that embrace telco cloud technologies and practices will have gained the skills required to
successfully develop applications that are enabled by the network. Indeed, the ability to integrate
applications with the network should become the telecoms industry’s fundamental competitive
advantage. That is not to say operators shouldn’t open up their networks to third-party applications –
they should – but their knowledge and expertise in network development means that their own
applications should integrate more efficiently and effectively: they should perform better than those
provided by ‘OTT’ players for whom the network remains an obstacle rather than an enabler.
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Realising the telco cloud vision
Moving to telco cloud is challenging
While the rationale for embracing telco cloud is clear, there are three factors that are slowing the
industry’s movement:
Figure 2: Challenges that slow down the ability to realise the telco cloud vision
1 2 3
Alignment within the
Catalysing change and Vendor maturity in telco
organisation and business
building skills cloud offerings
functions
The vendor community must Requires alignment and
Managing the transformation
commit to moving away from the commitment across business
and orgnisational changes is
traditional integrated models and functions in order to shift to a
challenging and requires a new
help operators realise the vision new operating model. Need for
set of internal skills and
of a flexible, open, multi-vendor wider business perception of
expertise for the future mode of
ecosystem with plug-and-play cloud native networking and the
operation
components importance for customers
Source: STL Partners
1. Catalysing change and building skills
Adopting telco cloud is about changing the way that operators run and adopting more agile practices
and DevOps to innovate much more quickly; but this involves complex change management and the
need for motivated team members skilled in coding, data science and software development.
Many telcos feel that they’re not ready and do not have the right capabilities to fully adopt a cloud
native approach. Shifting the organisation structure to become software-oriented is challenging and
many telcos lack the right skills, expertise and resources. Furthermore, telco cloud implies more
responsibility for the operator in integrating and managing solutions from vendors – this means the
operator takes on some of the risk that previously was borne by a vendor that provided an integrated
solution.
2. Vendor maturity in telco cloud offerings
Understandably, established telecoms vendors see a technical and commercial benefit in retaining
the traditional integrated approach to network deployment and management. Their integrated
solutions work, and they are able to offer stringent performance SLAs to operators. Guaranteeing the
performance of their technology when it is combined with technology from countless other suppliers
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is challenging (arguably impossible) – certification is expensive, time-consuming and does not
guarantee inter-working. Clearly, the disaggregation of network technology opens up the playing field
to a host of new competitors. Established vendors have little incentive to make this easy.
3. Alignment within the organisation and business functions
While understanding and accepting the theory of moving to telco cloud is easy, making the change is
not. Many managers remain more comfortable with traditional telecoms technology, processes, and
(vendor) relationships and, quite naturally, resist the move to adopting new (untested) practices
particularly if the impact of the changes are considered uncertain.
Different operator segments will take different paths
While the move to more virtualised networks may be inevitable, the end goal and the pathways for
getting there can vary widely from operator to operator. The reality is that relatively few operators can
themselves take on the risk of a pure ‘best of breed’ approach to telco cloud. The resources required
to design, test, integrate, and manage an open ‘best of breed’ solution are too high for all but the very
largest operators. Most players will need to compromise between the benefits and shortcomings of
the old network model and those of the new.
Figure 3: The old versus new telco models
Old telco model New telco model
• Proprietary integrated technology • Modular technology based on IT-
based on telecoms standards cloud-telecoms standards
What is it? provided by a small number of provided by a large number of
large vendors vendors
• Reliable – five 9s • Lower cost – less supplier power
• Secure • Greater network flexibility
Potential benefits • Clear SLAs with single vendor • Faster time to market
‘neck to choke’ • Greater innovation
• Closed ecosystem – little • Greater implementation risk for
innovation telco: needs to take on burden of
Potential shortcomings • Held to single vendor design, testing, integration, and
upgrade/innovation cycles management of network
technology
Source: STL Partners
While all telcos are different, we see at least three segments and associated telco cloud
implementation models developing. No one model is right for all circumstances (or for all telcos):
each is appropriate for the characteristics of that segment and each requires the telco to think about
how it can best maximise the benefits of telco cloud while minimising implementation risks.
We outline three generic telco cloud implementation models below and some of the considerations
for operators adopting each model.
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Figure 4: Outline of three telco cloud adoption models
Model 1. Open(ish) single vendor solution 2. Vendor supported best-of-breed 3. DIY best-of-breed
Telco cloud • Siloed vertical solutions - vendor one-stop • COTS hardware • COTS hardware
adoption shop – hardware, platforms, and
model applications likely to be provided by a single • Enabling platforms, certification of HW • Enabling platforms, plug and play VNFs/CNFs
vendor and VNFs/CNFs provided by one or more provided by best-of-breed vendors
vendor ecosystems
• Semi-open only and likely to have some • Telco as own SI
vertical integration (not a pure-play • Vendor SI to support
decoupling of layers)
Example SFR, Dialog, 3, Telkom Indonesia, Sasktel, Cyta BT, Telstra, Singtel, America Movil, Telenor AT&T, Verizon, Vodafone, Deutsche Telekom,
operators Telefonica
Operator Resource constrained with limited internal Growing IT/Cloud competence and strong Resources and capabilities to take on major
characteristics IT/Cloud and system integration capabilities system integrators but with more limited transformation programmes involving significant
resources than Segment 1 IT/Cloud requirements and substantial integration
Things to • Segment 1 may be the starting point for • This is about enabling a more open, best • Although this may be the ultimate ambition
consider many operators who lack the internal skills of breed, multi-vendor ecosystem to foster for some operators, we recognise that this is
and expertise, but it should not be the greater innovation across the stack. not a realistic starting point for most, given
ultimate destination. Progress has already been made in the legacy challenges and the need for the right
first wave of NFV to decouple software expertise, skills and resources to do this.
• Operators need to future proof their existing from underlying hardware and virtualising
model and have the ambition to move to network functions so that they can run as • However, we believe this should be the North
Model 2 or they face the risk of becoming software on generic industry standard Star for operators. Part of this will be enabled
less competitive in the long run. Operators COTS hardware. by standards that help with ensuring
who see segment 3 as the destination will interoperability across different components
be dependent on the vendor’s innovation • Although operators have learned a lot of the stack.
cycles, which ultimately constrains since that first wave, many still cite
innovation. This will make it much harder for challenges around not having the right
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Model 1. Open(ish) single vendor solution 2. Vendor supported best-of-breed 3. DIY best-of-breed
them to pursue revenue beyond skills and people. Therefore, there is still a • Operators here are large and powerful but still
connectivity. need for vendors to commit to and provide need to work together to ensure that vendors
pre-testing and pre-certification to ensure conform to open standards – they should be
• Work with vendors who provide a genuine that operators have greater freedom of participating actively in standards bodies and
roadmap for reaching Models 2 and 1 and choice in terms of VNFs/CNFs that sit on seek to share opensource code with each
hold them to account for this via contracts. top of their NFVi. Operators need to take other.
For example, include in contract that their an ‘integration by design’ approach and
components interoperate with those from push greater standardisation in their
other vendors with whom you seek to architecture and impose that with their
engage. suppliers north and south to deliver the
optimal desired outcomes.
• In parallel, many operators who have
taken this approach have cited challenges
with establishing accountability with their
vendor partners when issues arise, which
presents a key opportunity for systems
integrators to play an important role in
supporting operators progressing from
Segment 1 to Segment 2. Regardless of
whether an SI is involved, operators should
look to take greater ownership to
understand what’s happening in their
plumbing in order to build greater know-
how and experience.
Source: STL Partners
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THE TELCO CLOUD MANIFESTO | MARCH 2021
At STL Partners, we see a clear rationale for telco cloud beyond more flexible, agile, cost-effective,
OpEx-centric networks and operations. Telco cloud is also about enabling further telecoms
differentiation and growth through application and use case-specific networking, and ultimately about
creating technology, practices and organisations fit for the Coordination Age.
Many telco operators today are grappling with whether they should be driving progress in telco cloud
more proactively or wait for the industry to coalesce (with industry standards, maturity of vendor
solutions). The key questions that telcos should ask themselves are:
1. What do you see as your core competencies and what value are you trying to provide as part of
that?
2. Recognising your key strengths and limitations, how willing are you to take risks in driving
innovation yourself, rather than letting competitors and potential disruptors steal the lead?
Choosing a more cautious approach and failing to innovate is in itself a significant strategic risk and
telecoms operators should recognise that moving too slowly can also be a risky strategy, and that
their existing business model is under greater threat than they realise. This includes the risk of not
realising who the competition is and shaping up to them, as well as the dangers of not being able to
capitalise new opportunities arising from 5G.
STL Partners is committed to working with executives who share a vision for the industry that involves
greater agility and innovation, a bigger role for the network and operators, and believe that
implementing telco cloud is a key foundation of success.
© STL Partners EXECUTIVE BRIEFING 12
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