Hyperscalers’ focus is on creating value from distributed computing

Hyperscalers are at the cusp of scaling out their edge computing deployments as they focus on creating value from distributed computing, which is a key foundational aspect of their digital ecosystem initiatives. They must pivot from centralized data center build-outs to building out the edge to achieve the latency and quality of service that new network use cases will require.

TBR believes the world’s largest hyperscalers are all likely to extend their cloud footprints closer to endpoints through this decade and expects hyperscaler capex will shift significantly from central cloud to edge cloud over the next five years. The Big Nine hyperscalers will drive significant innovation in the edge space, contributing design references, technology standards, and best practices to facilitate ecosystem development.

Hyperscalers have been experimenting with ways to make it more economically feasible to deploy distributed edge network resources at scale. The commercial model will likely see hyperscalers partner with ecosystem stakeholders, such as tower companies and data center real estate investment trusts, to offset the financial burden of deploying, owning and operating edge compute environments. For example, a hyperscaler could partner with tower companies to site micro data centers at the base of cell sites and plug directly into the access and backhaul network.

Models such as this would help defray the cost and complexity of building and managing many sites. TBR also believes telco sites, such as central offices and aggregation hubs, are logical locations for edge compute resources. These facilities are usually strategically located, are owned and controlled by the operator, have access to power and cooling, have fiber readily available, offer secure access, and are ruggedized to withstand the elements.

Telcos are divesting their tower assets, which limits their opportunities and market leverage in the edge compute space; supply issues delay rollouts

Telcos relinquishing control over network sites opens door for hyperscalers

Hyperscalers are likely to continue their encroachment of network ownership as they build out their distributed computing platforms. Network access sites, particularly cell sites such as towers, are of unique strategic importance as hyperscalers aim to extend their platforms closer to data origination sources. The ultimate shift toward open virtual RAN and the radio intelligent controller will also spur significant innovation at the access layer of the network, which will prove to be an area of keen interest to hyperscalers that are looking at how to capitalize on new opportunities presented by edge computing, 5G and AI.

TBR believes it is highly likely that hyperscalers will become key customers of shared infrastructure owners, particularly towercos, during this decade as their reach extends beyond their central clouds.

Supply chain constraints will delay peak telecom edge compute spend growth rate to at least 2023

Delays in chipset availability — partly due to the COVID-19 pandemic and partly due to geopolitical factors and technological complexity — will slow the pace at which the vendor ecosystem can meet customer demand for edge compute infrastructure through at least 1H22. Supply chains should be able to meet demand by 2H22, setting the stage for projected 66.7% year-to-year growth in the market in 2023.

Shipping constraints are another headwind to meeting demand. Even if products can be manufactured, there are chronic problems with exporting and importing those products and bringing them to customer sites. This too will push out build timelines.

TBR’s Telecom Edge Compute Market Forecast, which is global in scope, details edge compute spending trends among communication service providers, which include telecom operators, cable operators and hyperscalers. This research includes current-year market sizing and a five-year forecast by multiple edge compute market segments and geographies. TBR’s Telecom Edge Compute Market Landscape, also global in scope, deep dives into the edge compute-related initiatives of stakeholders in the telecom market, including telecom operators, cable operators, hyperscalers and vendors that supply the telecom market.

PwC looks at the market and listens to customers to envision what comes next

TBR met with PwC’s Colin McIntyre in May to discuss PwC’s Deals practice, prompted in part by the changing market landscape as pandemic fears and headwinds in the U.S. and Europe appeared to be abating, accelerating interest in merger, acquisition and divestiture activities. McIntyre started the discussion by noting the firm views the emerging post-pandemic market as a key time to accelerate the digital transformation of its Deals practice in concert with changes happening across PwC’s enterprise clients. He noted that new drivers and trends in M&A include the nature of capital, geopolitical and regulatory changes, changing demographics, technology innovations and transformations, and shifting industry opportunities. In this volatile market, PwC sees opportunities to create value around strategic repositioning, performance improvement and asset optimization.

Beyond that fairly straightforward assessment, PwC formed its emerging views around the deals landscape through both in-depth “voice of the customer” research and the firm’s ongoing — and increasing frequency of — Deals engagements. Further, PwC has recognized that clients’ expectations around data sets have shifted from data as an underlying component to wanting insights and data-backed decision making much earlier in the deal’s process. Not data for data’s sake but, in McIntyre’s phrasing, “Take insight and data and be part of the journey … what does that data mean to the client.”

If post-pandemic realities have reordered what is important to customers in looking for acquisitions, PwC’s digitization of its Deals support process is certainly fortuitous. In TBR’s view, PwC’s re-evaluation of the post-pandemic deals market, with an emphasis on data and analysis and a recognition that uncertainty persists, reinforces the firm’s core offerings to help clients stabilize, reposition, acquire and reinvest. Not surprisingly, given the shifts within PwC that TBR has discussed in special reports over the past few years, those core offerings have been bolstered through a digital platform.

Harvesting data for deals, getting to value quickly and delivering differently

PwC describes the relatively new Junction platform as “the digital connectivity point for Deals, providing an enriched, web-based platform for our clients to engage with the team’s insights and analysis. For our people, it creates a digital link between execution and delivery, automating manual processes and streamlining how we ‘report.’” In McIntyre’s more colorful words, Junction is a cloud-based “harvesting machine” for helping clients generate insights and allows PwC to link and talk with clients about their key investment thesis, rather than just keeping the various commercial, compliance and risk pieces in separate silos. The ability to pull together data and insights across an organization’s entire market landscape allows for more collaborative and connected engagements.

As McIntyre explained, “Tax structures, supply chain, risk with controls and all these different pieces of the firm [can be brought] together in a way to work seamlessly. Starts the focus on client’s deal hypothesis, the value drivers, and brings the insights and analysis to support the client’s hypothesis.” He added that Junction allows “clients to comment on the insights and scenario plan and be more collaborative and interactive throughout the deal lifecycle.” In addition, for clients unprepared for a cloud-based and deeply digital experience, PwC tackles change management and training, including “giving the clients the coverage to think differently.” Junction, then, helps PwC focus on value levers and value creation. As McIntyre added, “Value is the currency people understand, as it either goes up or it goes down.”