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Hyperscalers’ cloud-based modern network architecture provides strategic advantage over legacy network technologies

Hyperscaler-built networks will look very different from traditional networks

Hyperscalers are building end-to-end networks that embody all the attributes and characteristics coveted by communication service providers (CSPs) as part of their digital transformations. The most significant differences are in the software stack and the access layer, where new technologies enable hyperscalers to build dense mesh networks in unlicensed and/or shared spectrum bands and build out low Earth orbit (LEO) satellite overlays for access and backhaul. Mesh networks will likely be used to provide low-cost, wireless-fiber-like connectivity in urban and suburban environments, while satellites will primarily be leveraged to provide connectivity to rural and remote environments.

Hyperscalers are starting from scratch, completely reimagining how networks should be built and operated. Their clouds, numerous network-related experiments over the past decade, plus the raft of new network-related technologies on the road map will enable hyperscalers to build asset-light, automated networks at a fraction of the cost of traditional networks.

Hyperscaler networks will cost a fraction of traditional networks

TBR estimates hyperscaler networks cost 50% to 80% less to build than traditional networks (excludes the cost of spectrum, which would make the cost differential even more pronounced because hyperscalers will primarily leverage unlicensed and shared spectrum, which is free to use). Most of the cost savings stems from innovations, such as mesh networking, carrier aggregation, LEO satellites and integrated access-backhaul, that enable significantly less wired infrastructure to be deployed in the access layer for backhaul and last-mile connection purposes.

For example, Meta’s Terragraph mesh access point can autonomously hop signals through multiple other access points before sending the data through the nearest available backhaul conduit. In the traditional architecture, some form of backhaul would need to connect to each access point to backhaul the traffic. Mesh signals could also be backhauled through LEO satellites, further limiting the need to deploy wired infrastructure in the access layer, which is one of the most significant costs of traditional networks.

Another key area of cost savings stems from cutting out certain aspects of the traditional value chain. By open-sourcing some innovations, such as hardware designs, hyperscalers can foster a vibrant ecosystem of ODMs to manufacture white boxes to compose the physical network. The white-boxing of ICT hardware can lead to cost savings of up to 50% compared to proprietary, purpose-built appliances.

Related Content:

Top 3 Predictions for Telecom in 2022

Webinar: 2022 Predictions: Telecom

Hyperscalers are reimagining how networks are built, owned and operated

Hyperscaler-built networks will look very different from traditional networks

Hyperscalers are building end-to-end networks that embody all the attributes and characteristics coveted by communication service providers (CSPs) as part of their digital transformations. The most significant differences are in the software stack and the access layer, where new technologies enable hyperscalers to build dense mesh networks in unlicensed and/or shared spectrum bands and build out low Earth orbit (LEO) satellite overlays for access and backhaul. Mesh networks will likely be used to provide low-cost, wireless-fiber-like connectivity in urban and suburban environments, while satellites will primarily be leveraged to provide connectivity to rural and remote environments.

Hyperscalers are starting from scratch, completely reimagining how networks should be built and operated. Their clouds, numerous network-related experiments over the past decade, plus the raft of new network-related technologies on the road map will enable hyperscalers to build asset-light, automated networks at a fraction of the cost of traditional networks.

Hyperscaler networks will cost a fraction of traditional networks

TBR estimates hyperscaler networks cost 50% to 80% less to build than traditional networks (excludes the cost of spectrum, which would make the cost differential even more pronounced because hyperscalers will primarily leverage unlicensed and shared spectrum, which is free to use). Most of the cost savings stems from innovations, such as mesh networking, carrier aggregation, LEO satellites and integrated access-backhaul, that enable significantly less wired infrastructure to be deployed in the access layer for backhaul and last-mile connection purposes.

For example, Meta’s Terragraph mesh access point can autonomously hop signals through multiple other access points before sending the data through the nearest available backhaul conduit. In the traditional architecture, some form of backhaul would need to connect to each access point to backhaul the traffic. Mesh signals could also be backhauled through LEO satellites, further limiting the need to deploy wired infrastructure in the access layer, which is one of the most significant costs of traditional networks.

Another key area of cost savings stems from cutting out certain aspects of the traditional value chain. By open-sourcing some innovations, such as hardware designs, hyperscalers can foster a vibrant ecosystem of ODMs to manufacture white boxes to compose the physical network. The white-boxing of ICT hardware can lead to cost savings of up to 50% compared to proprietary, purpose-built appliances.

Hyperscaler disruption portends structural changes to the telecom industry through this decade

The technological and business model disruption hyperscalers are bringing into the telecom industry portends significant challenges for incumbent vendors and CSPs. TBR sees the scope of disruption becoming acute in the second half of this decade, likely prompting waves of M&A that will reshape the global landscape. CSPs will engage in M&A to stay relevant and financially sound, while incumbent vendors scramble to evolve as their primary business model (selling proprietary hardware and/or software and attached services) is increasingly marginalized and eventually becomes obsolete as hyperscaler innovations spread through the industry.

Hyperscalers do not want to become telecom operators; they want to leverage networks to obtain data and drive their other digital businesses

Hyperscalers are in the data business; providing network connectivity is a means to that end

Hyperscalers are building large-scale networks to drive forward and support their big-picture strategies, which revolve around building out their respective metaverses and supporting a wide range of new digital business models that will be enabled by new technologies such as 5G, edge computing and AI.

To that end, hyperscalers have a vested interest in ensuring the entire world is blanketed with high-speed, unencumbered, intelligent, low-cost connectivity. The economic justification to build the network is driven by the need for hyperscalers to gather and process new types of data to drive these new digital business initiatives. TBR notes that this business case is completely different from CSPs’ business case, which monetizes the network access rather than the data that comes over the network. The hyperscaler model emphasizes giving away low-cost or free connectivity and monetizing the data that comes through the network. The hyperscaler model is far more valuable than the traditional connectivity model and will likely ultimately become the predominant business model for connectivity.

CSPs sit on vast data lakes and have for many years. These data lakes contain valuable information about subscribers, endpoint devices, real-time location and tracking, and other metrics that are of critical importance for some of the digital business ideas hyperscalers want to commercialize, such as drone package delivery and autonomous vehicles. Owning more of the physical network infrastructure and the core software stack puts hyperscalers in a prime position to capture and monetize this data.

TBR notes that this strategy is already in use in the telecom industry in various places in the world. For example, Reliance Jio and Rakuten are using this strategy in India and Japan, respectively. In both cases, connectivity is given away for free or at a significantly lower cost compared to rival offers, and the data generated by the connections indirectly feeds and monetizes each company’s respective digital businesses, such as advertising, financial services and e-commerce. There is significant evidence suggesting that Alphabet, Amazon, Apple, Meta Platforms and Microsoft all have strategies that are similar but of a far greater magnitude.

Hyperscalers already own and operate the largest networks in the world; the next build-out phase is the mobile core, far edge and access domains

Over two-thirds of global internet traffic traverses hyperscaler-owned network infrastructure at some point in the data’s journey. The vast majority of that traffic travels over hyperscalers’ backbone networks, which primarily comprise optical transmission systems (submarine and terrestrial long-haul optical cables), content delivery networks, and cloud (including central, regional and metro) data centers.

The domains of the network where hyperscalers have yet to dominate at scale are the mobile core, far edge and access layers, but there is mounting evidence to suggest this is changing, thanks to technological advancement and regulatory breakthroughs (e.g., the democratization of spectrum).

TBR’s Hyperscaler Digital Ecosystem Market Landscape focuses on the five primary hyperscalers in the Western world that TBR believes will own the largest, most comprehensive end-to-end digital ecosystems in the digital era. Specifically, the five hyperscalers covered in this report are Microsoft, Alphabet, Meta Platforms, Amazon and Apple. Collectively, TBR refers to these five hyperscalers under the acronym MAMAA. TBR covers the totality of the largest hyperscalers’ businesses, with an emphasis on how they are disrupting the ICT sector. Gain access to this full report, as well as our entire Telecom research, with a 60-day free trial of TBR Insight Center™.

2022 Predictions: Telecom

Join Principal Analyst Chris Antlitz Thursday, Feb. 10, 2022, for an in-depth, exclusive review of Top 3 Predictions for Telecom in 2022, part of TBR’s Predictions special series examining market trends and business changes in key markets, such as cloud, IT services, digital transformation and telecom. 

Don’t miss:

  • How supply-demand imbalances could impact the pace of 5G market development
  • Why hyperscalers are shifting focus from central cloud to edge cloud
  • Which vertical is expected to spend the most on private cellular networks over the next few years

Mark your calendars for Thursday, Feb. 10, 2022, at 1 p.m. EST,
and REGISTER to reserve your space.

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Top 3 Predictions for Telecom

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Informatica returns to the public market with an emphasis on data democratization and hyperscale partnerships

Informatica’s fall 2021 launch, which consisted of a new cloud-native marketplace, automated data quality features and new data scanners, comes alongside the company’s return to the market in an $840 million IPO. The announces offerings, from new services to partner integrations, largely complement the Intelligent Data Management Cloud (IDMC) platform — the key announcement at Informatica World 2021 in April — and align with what is now Informatica’s cloud-first approach to data governance and management. After six years under private ownership and a significant business model shift to subscription-based revenue, which now contributes over 90% of total revenue, Informatica returns to the public eye ready to convince investors it is fully embracing cloud as the operating model required for a successful, data-led business strategy.

Fall 2021 release targets data consumers

Informatica’s new offerings hit the market at a time when distributed workforces continue to be the norm in light of the COVID-19 pandemic and businesses are requiring more and more data to make critical decisions. In addition, a persistent lack of technical skills is weighing on business leaders and pushing them to look to third-party sources, such as marketplaces, to improve data literacy. Informatica hopes to support an underserved audience of citizen analysts and lines of business (LOBs) while staying true to its technical roots by offering developers a new set of automated tools and features.

Announcing Cloud Data Marketplace

One of the key announcements in Informatica’s fall 2021 launch was Cloud Data Marketplace, a one-stop data shop helping to meet the vast demand for a simpler data delivery process. Available as a service within IDMC, Cloud Data Marketplace allows data owners to publish assets from various on-premises and cloud data catalogs and offer analytics, AI and machine learning (ML) models to end users. The one-stop-shop experience is targeted to data consumers, which may include LOB leaders and their key stakeholders looking for packages (AI models and data sets) to support a number of data-driven use cases from price optimization to improved operational efficiency. When marketplace users ask for a data set that best fits their particular need, program administrators have the ability to approve the request and ask for patterns and data usage.

By bridging the gaps between technical specialists and business leaders, Informatica strives to make data more readily accessible across the enterprise. Cloud Data Marketplace will support this strategy by complementing Informatica’s expertise in the early phases of the data pipeline — from data discovery to manipulation — and will place the company’s metadata catalog in front of business leaders.

Ensuring data quality in the cloud

Informatica remains committed to data and analytics governance, leveraging its embedded AI engine CLAIRE to help automate tasks throughout the data process and provide clients with better control over their data. In the fall 2021 launch, Informatica brought many features previously available within legacy Informatica Data Platform (IDP) to IDMC. For instance, Informatica is offering its existing Data Quality tool to enable customers to profile, transform and manage data in the cloud the same way they could with on-premises data. Customers can also leverage natural-language processing (NLP) capabilities in the back end to create rules, such as setting up their own Data Quality and Business Users. Lastly, Informatica is infusing more automation in the platform, eliminating the need to manually create Data Quality tasks, such as applying health checks.  

Informatica reaffirms commitment to cloud partners

To protect its position as a neutral vendor supporting customers regardless of underlying infrastructure or deployment method, Informatica closely aligns itself with leading hyperscalers, offering native integrations with cloud providers’ well-known platform and infrastructure offerings. Expanding on its strategic, multiyear relationship with Amazon Web Services (AWS), Informatica announced it is supporting AWS Graviton, the company’s own processors based on the Arm architecture. This will help Informatica position as a viable integration option for customers looking to run general-purpose workloads as well as compute-intensive applications, such as high-performance computing (HPC), AI and ML. AWS has been emphasizing its Graviton processors for some time, especially as it looks to push out more modern Elastic Compute Cloud (EC2) instance types to customers and capture more critical workloads.

TBR notes Informatica is early to market as many of AWS’ other data partners and Informatica competitors have yet to offer support for Graviton instances. Further, Informatica introduced application ingestion capabilities, a module under Cloud Mass Ingestion (CMI), to allow customers to ingest and synchronize data from SaaS and on-premises application sources into Cloud Data Warehouses. These capabilities support Informatica’s partner strategy, specifically with vendors like Microsoft, which continues to work with Informatica to move clients’ data warehouses to the cloud. Additional partner announcements in the fall launch included the ability to scan data from Amazon Redshift, Azure Data Factory for cloud ETL (Extract, Transform, Load), and SAP Business Object Data Services into Informatica’s AI-powered data catalog offering.

Top 3 Predictions for Telecom in 2022

Telecom industry faces new challenges in the post-pandemic era

2022 will be a transition year for the telecom industry

After emerging from the COVID-19 pandemic relatively unscathed, the telecom industry is entering a new phase and faces a new set of challenges. These challenges include navigating a supply chain left in shambles due to the impact of the pandemic and, representing a separate concern, the inexorable rise and encroachment of hyperscalers in the telecom domain, which threatens to completely disrupt the status quo in the industry.​

Incumbent communication service providers (CSPs) and their vendors are navigating these issues, but there is an increased urgency to digitally transform and align with structural changes occurring in the industry, such as the pressure to work with hyperscalers on network transformation and business model co-creation in the cloud.​

2022 is poised to be a unique transition year for the telecom industry. While unprecedented government stimulus that originated in the wake of the COVID-19 outbreak continues to be pumped into the global economy, lifting all players in some way across the market landscape, CSPs and their vendors must transition to the fundamentally new network architecture, which is software-based, fully virtualized and cloud-centric. CSPs must also determine where they will play in the new value chains that are being created in the digital economy, most notably in hyperscalers’ marketplaces, and in conjunction with new players that are entering the scene in domains such as private networks and satellites.​

Meanwhile, supply chain challenges are expected to persist through 2022, with continuing semiconductor and component shortages as well as ongoing skilled labor deficiencies and shipping delays, all of which threaten to delay market development and hinder vendors’ ability to recognize revenue and pursue new growth opportunities. Inflation (potentially stagflation) and rising interest rates also pose risks, portending margin pressure and debt refinancing challenges.​

Taken together, these circumstances indicate 2022 will be an unusual year for the telecom industry. While government-induced stimulus will provide various benefits to players across the industry, giving off a sense that the industry is functioning normally and is healthy, an acceleration in competitive and technological changes poses a risk to the long-term performance of incumbents. Amid the uncertainty 2022 will bring, one thing is certain: Major changes are coming to the telecom industry in the post-pandemic world, and fast.

2022 telecom predictions

  • Supply-demand imbalance delays pace of 5G market development
  • Hyperscalers scale out edge cloud
  • Government becomes leader in 5G spend among nontelecom verticals

Send me a free copy of TBR’s Top 3 Predictions for Telecom in 2022

Telecom Business Research’s 2022 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud, telecom, devices, data center, and services & digital.

Hyperscalers begin to shift capex from central cloud build-outs to edge cloud build-outs

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.

Total CSP Edge Compute Spend 2020-2025E

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.

TBR projects CSP spend on edge compute infrastructure will grow at a 46.1% CAGR from 2020 to 2025 and reach $100B

Key Insights

The Big Nine hyperscalers will collectively outspend the combined outlays of telcos and cablecos on edge compute infrastructure before the middle of this decade.  

All Big Nine hyperscalers are investing in the edge in some way. Amazon, Microsoft and Google have global ambitions for edge, though and the hyperscalers intend to partner with and/or compete against telcos and cablecos in the edge space.

Delays in chipset availability — due to the COVID-19 pandemic, geopolitical factors and technological complexity — will slow the pace at which the vendor ecosystem can meet demand for edge compute infrastructure through at least 1H22.

TBR projects CSP spend on edge compute infrastructure will grow at a 46.1% CAGR from 2020 to 2025 and reach $100B

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.