The public cloud has failed to crack telecom

It was hailed as a revolutionary moment, up there with guillotining a monarch. Yet nearly three years since Charlie Ergen's Dish Network supposedly plunged into a public-cloud partnership with Amazon Web Services (AWS), just about no other telco has followed. "No operators have core applications in the public cloud," David Hennessy, the chief technology officer of the UK's Three, told Light Reading.

Its financial plight hardly makes Dish the best advert for public cloud in telecom. Losses at its wireless unit soared to $1.5 billion for the first nine months of 2023, from about $515 million a year before. It needs additional capital for its 5G rollout and has warned it may struggle to raise this on favorable terms. The AWS tie-up has not made the task of building a nationwide 5G network in a country as big as the US look any easier.

Still, most other telcos already have infrastructure in place. Many, including Three, have also been willing to put standard IT applications in the public cloud, just as companies in numerous other sectors have done. Europe's Vodafone still runs customer relationship management and other IT workloads on tens of thousands of x86 servers installed in its own facilities. But under a deal announced this week, that IT estate will gradually be shifted to Microsoft Azure's public cloud. Hennessy says Three has now ditched its legacy IT platforms, dividing workloads between AWS and Azure.

Companies are attracted by the economics. Ideally, the public cloud should make them less capital intensive and allow them to pay only for what they use. It also gives them access to features and applications developed by AWS, Azure and Google, the dominant public-cloud players. Dish hoped to extend those benefits by hosting not just IT software but telco workloads – 5G core and radio access network (RAN) functions – in the public cloud.

Control freaks

Yet even if it is still too early to pass final judgement on Dish's partnership with AWS, it increasingly seems like an aberration. Neither of the world's other prominent "greenfield" telcos – Rakuten in Japan and 1&1 in Germany – uses the public cloud for telco workloads. Among "brownfield" players, the most obviously comparable move is AT&T's tie-up with Azure. But while it uses Microsoft technologies, the operator's 5G core remains inside AT&T's own facilities, it has regularly pointed out, with Microsoft keeping noticeably shtum on the matter.

Verizon, another big US telco, has also previously ruled out moving its core network to the public cloud. "I will never be putting our core network on a hyperscaler," said Sampath Sowmyanarayan, currently CEO of Verizon Consumer, back in October 2022, when he led Verizon Business. "We need to control it, we need to own the stack, we need to manage through it."

His concerns about ownership and control are shared in Europe. "A lot of our IT applications are in the public cloud, but the mission-critical applications tend to sit in our own data centers and that is due to a combination of regulation and security," said Hennessy. Europe's regulators typically do not want critical systems and data stored in either another jurisdiction or facilities owned by a foreign entity.

Any change in the regulatory mindset seems unlikely. After publicity about the US government spying on Europe, aided by American technology giants, along with privacy violations by Meta, there has been a backlash overseas. Authorities increasingly fret about the growing power of American Big Tech. The UK is even now investigating if the activities of AWS, Google and Microsoft in the country's cloud market are anti-competitive.

Feedback from BT, the UK telco incumbent, is critical. Much like Three, it has resisted any use of the public cloud to support its core, saying this is mainly down to "security and resilience, and a desire to retain end-to-end control of our network assets." Instead, BT has built its own private cloud in partnership with Canonical, a UK software company that has embraced cloud tools like Kubernetes, an open-source management platform.

Yet BT also raises objections based on the "market power" of the hyperscalers. With the breadth of their portfolios, they could feasibly use service bundling or discounting to obtain advantage or "lock in" their customers, it said in documents filed with Ofcom, the UK telecom regulator. Microsoft, for example, has tried to impede the use of its applications with any other cloud provider's infrastructure, according to BT.

Journey to the core

But resistance on the networks side is not just to do with regulation, security and wariness about feeding the public-cloud beast and making it even stronger. The big data centers owned by the hyperscalers might be hundreds of miles from a neighborhood of smartphone users. Such long distances between customers and the location of critical network resources can affect service quality, driving up "latency," a measure in milliseconds of the round-trip journey time for a network signal.

"You would never get the public cloud as close to customers as you would with private cloud and distributed architecture," said Hennessy. "Our is extremely distributed and spread across 20 different sites. From a latency perspective and from an efficiency perspective, we don't want to trunk traffic back to London."

Three's core is currently up for tender. Today, the operator is using a Nokia core in a private cloud, relying on the Finnish vendor for systems integration as well as the underlying technology. But that system appears ill-equipped to cope with the forecast volume of traffic on Three's network. "The biggest motivation is capacity – traffic keeps growing, particularly with fixed wireless access," said Hennessy. "It works fine, but it is just not big enough."

Unsurprisingly, however, Three has flatly ruled out a public-cloud deal as a substitute for this Nokia core. The operator's other big requirement is that its supplier must bring both the main core applications and the supporting "containers-as-a-service" (CaaS) platform. Thanks to its recently announced partnership with CaaS developer Red Hat, Nokia qualifies and might retain Three as a customer via an upgrade. Red Hat will look attractive to Three because it is designed to host other third-party workloads, too. Nokia's own cloud platform, by contrast, is intended only for Nokia's applications.

"My belief is that a company of our scale shouldn't be acting as a systems integrator between applications and infrastructure," said Hennessy. "There is a lot of lifecycle management associated with matching infrastructure and applications and making them work well together and we would prefer to be on a harmonized roadmap."

Hyperscaler adaptation

Intriguingly, none of this means Three could not do some kind of core deal with a hyperscaler, and it has been in talks with both AWS and Microsoft. Taking note of regulatory and telco concerns, the hyperscalers have become less religious about the public cloud, even if they are not prepared to shout that from the pulpit. Rather than persuading operators to host network applications in public-cloud facilities, they now offer to bring their technologies into a telco's own property. This is exactly what AT&T says it has done with Microsoft in 5G. And it's a development that puts the hyperscalers in direct conflict with the likes of Canonical, Red Hat, Broadcom-owned VMware and Wind River.

So far, however, they have little to show for it in Europe, where big telcos are pursuing what Microsoft has disparagingly called "DIY clouds." Deutsche Telekom, Europe's largest operator by sales, has for eight years been investing in a platform dubbed TCaaS. Like Red Hat, as opposed to Nokia, the German company aims to have something that can be used for all manner of third-party applications.

"It is internally developed and yes, we are deploying 5G core on this TCaaS," said Ivica Cale, the head of cloud infrastructure at DT Cloud Services, during Informa's Network X conference in Paris last October. "We are onboarding applications. It is general purpose, and you can do core or whatever you want. It is not siloed per function."

Underpinning these DIY efforts is a desire to avoid dependence on any third party for mission-critical technology. Moving workloads between different clouds is fiendish, according to numerous telco executives, and public clouds have tended to charge exorbitant rates (so-called egress fees) for the privilege. As hyperscalers design their own bespoke technologies, including server chips and other hardware, migration seems unlikely to become easier.

Yet telcos, especially smaller ones like Three, generally lack the skills and scale for efficient in-house development of cloud technologies. This week's deal between Microsoft and Vodafone shows even the biggest operators are prepared to lean heavily on a hyperscaler for things as important as artificial intelligence, IT and enterprise applications, if not the actual network. Amid tough economic conditions, the industry is waiting to see if anyone caves.