5G cloud move big for AT&T but huge for Microsoft: Entner

Microsoft
This lets AT&T focus on operating the network and innovating on the software layer rather than the underlying cloud layer. (Microsoft)
Roger Entner

We’ve talked about it, we’ve seen greenfield providers like Dish Network do it, now a Tier 1 operator like AT&T with almost 175 million connections is moving its 5G core to the cloud. This is a logical continuation of AT&T’s leadership in virtualizing and disaggregating telecom network workloads. It also makes Microsoft the leader in cloud services for telecom providers.

Microsoft is buying AT&T’s 5G core technology and expertise and is moving it to its cloud infrastructure. This is a big move for AT&T, but a huge move for Microsoft’s Azure for Operators as it is instant validation of its platform.

How do other operators know Microsoft’s platform is able to perform? Well, it’s the platform that was developed and underlies the AT&T network. In a key intellectual property and human capital transfer, Microsoft will add more than 100 engineers and will own the technology to run 5G core networks on its cloud.

A hyperscaler like Microsoft will be able to drive down cost substantially faster than even one of the largest operators in the world as the mobile 5G core load can be run on the shared infrastructure.

It also comes after a lot of introspection on AT&T’s side of what is a core competency of the operator and what is not in a world where software and hardware become disaggregated, and the network becomes virtualized.

After AT&T exited the cloud server provider business in 2017, it is only the logical next step not to build the same capabilities just at an even smaller scale in house. It lets AT&T focus on operating the network and innovating on the software layer rather than the underlying cloud layer.

It also follows the modus operandi of U.S. operators of justifying the investment into the next generation mobile network by significantly reducing their cost structure. The decision to move the 5G core to the cloud is consistent with AT&T’s long standing virtualization strategy as it keeps the software layer in house.

AT&T will continue to run the network, just in a more efficient way. We will continue to see this disaggregation as AT&T will roll out its open RAN strategy, first from indoors, then rural and finally urban areas.

While Amazon’s AWS had most of the buzz until now as the core infrastructure provider for the new Dish network when it launches later on in 2021, this deal makes Microsoft the established leader for operators who want to move their 5G core workload to the cloud.

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By having AT&T as its corner client and the use of its IP, Microsoft has a significant first mover advantage that will allow it to get other operators to make the move. In a way, the mobile operator space is like a waddle of penguins who stand at the edge of the cliff and stare into the water where the fish are. As one finally jumps in the water, the waddle turns into a raft of penguins as they end up all in the water.

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As AT&T is the first large scale operator who is moving its 5G core workload to the cloud, within the next five years more than half, if not three-quarters, of mobile operators will follow AT&T.

This deal comes on the heels of Microsoft buying both Affirmed Networks and Metaswitch Networks. By combining AT&T’s assets and IP, with that of its previous acquisitions, Microsoft becomes the leader in cloud services for telecommunications providers. Before the AT&T deal, many outsiders did not take Microsoft’s aspirations in the cloud for telecommunications providers seriously, but looked at it as somewhere between an interesting tech project and a glorified hobby for Microsoft. Things have certainly changed.

On one hand, it is also validation of the strategy of greenfield operators like Dish that is following the same strategy as AT&T. It will make it a lot easier for these young operators to get funding as not only the cost structure but also the risk profile becomes substantially lower. On the other hand, the expected low cost structure that greenfield operators were expecting is diminishing.

The established carriers are not standing still and will not allow the new operators to take their candy away.

Roger Entner is the founder and analyst at Recon Analytics. He received an honorary doctor of science degree from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner and catch him on The Week with Roger podcast.

"Industry Voices" are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce staff. They do not represent the opinions of Fierce.