There’s been a consistent cognitive dissonance in the telecom industry for some time, as the industry talks about moving to cloud-native platforms and services while at the same time spending hours in committee meetings tinkering with complicated OSS (operations and support systems) and ETSI (European Telecommunications Standards Institute) diagrams.
Vodafone’s landmark deal with Microsoft might change that. Vodafone, by tying up with Microsoft on future telco cloud platforms, may be a signal that the telecom industry is finally ready to give up and move their platforms fully cloud native.
Is the devil in the details?
First, the details: Microsoft and Vodafone have a signed a 10-year deal to become partners to build new cloud-native platforms and drive Vodafone's Internet of Things (IoT) business. Vodafone will invest $1.5 billion in the coming decade in cloud and AI technology supplied by Microsoft, while Microsoft says it will become an equity investor in Vodafone's managed IoT business as a spinoff targeted by April of this year.
This is a radical move. But radical in a good way. I’ve long held the opinion that more rash moves are needed by telcos – toss the old model and just move to cloud. This deal shows that Vodafone CEO Margherita Della Valle had a light-bulb moment and realized it’s time to accelerate the move to cloud-native technology to boost innovation and reduce costs.
Others should follow. The telcos have no choice. Worldwide, many of them have loaded up with debt as their costs-per-bit increase and their revenue growth has declined. While some have complained that they are being hijacked by streaming bit-hoggers, the truth is that many of them are just bloated, slow-moving organizations with huge installed bases that are difficult to manage. But don’t listen to the whining. The North American market shows it’s an execution problem, not a regulatory problem. T-Mobile’s success and rising share price prove that it’s not impossible to be successful as a service provider, if you focus and do it right.
Vodafone’s tie-up with Microsoft was probably looked upon by other service providers with a raised eyebrow. Did they make a deal with the devil? Won’t this benefit Microsoft more than Vodafone?
Perhaps, yes. But the AI bubble makes it necessary. Nobody is sure how fast AI will move or how much it will impact the bottom line, but we know for a fact that service providers won’t be leaders in developing AI – and they don’t want to miss the boat.
Innovation comes from the tech world
The global telecoms find themselves in a familiar position. Having missed opportunities to monetize streaming media and other digital services, they are still largely relegated to selling pipes and connectivity. Nothing wrong with that – we all need connectivity – but the pieces of the puzzle that have been missing are strong customer service, more efficient technology platforms and the potential to develop services with partners.
The Microsoft-Vodafone deal is focused on just that, along with Vodafone becoming a channel partner for Microsoft.
Microsoft, for its part, said the deal will expand the company's reach in the world of AI. The two companies had already been working together on cloud-related projects. Another aspect of the deal is that Vodafone will become a channel for more Microsoft services, including Azure and Teams. It will also be migrating data-center assets to Microsoft's Azure.
This is a smart strategic deal by Vodafone. I believe there is relatively low risk. Microsoft’s cloud platform will be a strong vehicle for future, digitized services. The $1.5 billion price tag is likely lower than what they would spend to build new services internally.
As I recently wrote in a blog for DriveNets, the telecommunications industry does actually have a long history of innovation – it’s just been lacking in innovation in cloud. Let’s remember that telecom companies were active participants with the advances in packet-switched computer networks, the internet and and cellular telephony. Data networks, including the internet, fueled a boom in business communications. Now, it needs to focus on embedding itself in the cloud industry, as it did with the internet.
At some point, the telcos got sidetracked. North American companies such as AT&T and Verizon got bogged down making large, misguided acquisitions such as digital media and internet properties, where they don’t have the right DNA.
The cloud is the right platform for the future. Open hardware, APIs, and connectivity fabrics are the path to service velocity.
Competitors might be horrified by this deal – giving away the platform to Microsoft? But when you are struggling to innovate, it might be best to the hand the car keys to a driver more adept at handling acceleration.
This deal will likely serve as a catalyst for other global telecoms to rethink their approach to cloud-native and accelerate plans to move there.
R. Scott Raynovich is the founder and chief analyst of Futuriom. For more than two decades, he has been covering a wide range of technology as an editor, analyst, and publisher. Most recently, he was VP of research at SDxCentral.com, which acquired his previous technology website, Rayno Report, in 2015. Prior to that, he was the editor in chief of Light Reading, where he worked for nine years. Raynovich has also served as investment editor at Red Herring, where he started the New York bureau and helped build the original Redherring.com website. He has won several industry awards, including an Editor & Publisher award for Best Business Blog, and his analysis has been featured by prominent media outlets including NPR, CNBC, The Wall Street Journal, and the San Jose Mercury News. He can be reached at [email protected]; follow him @rayno.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce Wireless staff. They do not necessarily represent the opinions of Fierce Wireless.