Amazon and Microsoft’s Strategies in the Telco Domain

The year 2020 has seen many investments and partnerships for Webscale companies investing in telecoms-related companies and partnering with telcos to extend their reach. For example, Microsoft acquired Affirmed Networks, a virtualized Evolved Packet Core (vEPC) vendor, and Metaswitch, a virtual IP Multimedia Subsystem (vIMS) and virtualized Session Border Controller (vSBC) vendor, while Amazon announced several partnerships with mobile operators (including Vodafone and Verizon) to install its Amazon Web Services (AWS) Wavelength capabilities right within telecom network edge servers. In July 2020, Orange announced a strategic partnership with Google Cloud to collaborate on Artificial Intelligence (AI), edge computing, and data. It’s now becoming clear that telecom operators and vendors have unique strengths that Webscale companies want to take advantage of, but these partnerships come at an uncertain time in the development of 5G due to current geopolitical tensions.

5G is being deployed in the consumer domain and as of June 2020 Release 16 has been frozen, signaling the telecom operator venture into enterprise verticals. Their initial attempts before R16 have focused on deploying private cellular networks, something that R16 will augment and build on. However, Webscale companies are targeting the very same verticals telecom operators are trying to address, giving rise to the following questions:

• Are Webscalers competing with telecom operators?
• Will Webscale companies acquire private cellular vendors to expand their product portfolios to the radio access domain?

To answer these questions, it is necessary to dive into individual Webscale strategies to understand their priorities in the telecoms segment.

Both Amazon and Microsoft have invested significant effort and capital to acquire telecoms expertise in 2019 and 2020, making mobile operators weary of their activities. However, ABI Research does not expect these two companies to compete against mobile operators for many reasons.

Amazon Web Services’ (AWS) main strategy is to sell its Platform-as-a-Services (PaaS) capabilities through approximately 200 hundred products and services it currently offers. Amazon has very wide developer reach for these products and is a PaaS provider for several other industry giants including McDonalds, Siemens, and others. Amazon now aims to expand the reach of its applications with low-latency functionality by installing its capabilities in telco edge servers, allowing developers to take advantage of low-latency capabilities for better applications. ABI Research does not expect AWS to acquire radio vendors, when in fact its marketplace already offers this capability through its partnership with Athonet. Managing a cellular network is neither Amazon’s priority nor its expertise.

Microsoft, on other hand, provides Software-as-a-Service (SaaS) products to a variety of enterprises and is clearly the market leader in terms of productivity software. Its acquisition of Affirmed Networks and Metaswitch is in this direction, aiming to enhance how the company can interface with existing enterprise communication systems. Eventually, these features will arguably lead to potential new revenue streams by upselling additional features (e.g., unified communications). The radio network still remains an area where Microsoft does not have expertise. However, Microsoft—much like Amazon—is also pursuing deployments of its Azure Edge software in telecom edge servers or even on-premises with Azure Private Edge zones.

The previous sections highlight a key priority—and strength—that Webscale companies exercise but the telecoms industry is missing. These companies acquire to expand their core competencies, but partner where they do not have expertise at all. This is something the telecoms industry needs to embrace for 5G: create products that correlate directly with telecoms expertise but partner with companies for other domains. Mobile operators’ expertise is clearly in the connectivity layer, and they should aim to partner with Webscalers or other companies to expand into the SaaS domain, which network slicing aims to offer.

This is the co-creation philosophy mobile operators need to embrace and consider Webscalers not as their lifelong competitors, but as valuable partners to help address the enterprise domain. In fact, ABI Research expects that enterprise digitization will be a significant revenue opportunity, where solutions will consist of components from a variety of companies, including operators, independent software developers, vendors, Webscalers, and Systems Integrators (SIs). The party that sells the services to the end user will be responsible for implementing the Service-Level Agreement (SLA) and monetizing the relationship, but behind this there will likely be a series of partnerships that will be an opportunity for all of these companies. Operators may not be the ones deploying the solutions, but there are still monetizable opportunities based on connectivity or edge computing capabilities.