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Telecom Cloud Revisited: 5G Core and Edge Networks

Incumbent telecom service providers are consumed by the ongoing quest for substantive new revenue opportunities, beyond the delivery of internet access via wired and wireless broadband infrastructure. The leaders have long held the belief that value-added offerings were the key to sustainable growth.

Once again, that quest has led them to explore potential upside opportunities within the cloud computing arena. Global telco cloud computing revenue is now forecast to reach $29.3 billion by 2025, up from $8.7 billion in 2020, at a 5-year Compound Annual Growth Rate (CAGR) of 27 percent.

That ongoing growth will be driven primarily by cloud infrastructure-related investments, such as Virtual Network Functions (VNFs), Management and Network Orchestration (MANO), and Cloud-Native Functions (CNFs).

Telco Cloud Computing Market Development

By 2025, the telco cloud computing market will be worth $10 billion in North America, $9 billion in Asia-Pacific (APAC), and $8.2 billion in Europe, according to the latest worldwide market study by ABI Research.

This introduction of cloud-native environments in the telco business landscape presents a shift in the value chain. They now have a second chance at cloud deployment -- the multi-vendor approach, in which different network equipment vendors are responsible for different components of the telco infrastructure.

"While this approach seems to provide some benefits, such as avoiding single-vendor lock-in, it also requires substantial coordination of effort, not only through robust MANO, but also between stakeholders during certain key phases of the telco cloud deployment, such as the design and planning phase," said Kangrui Ling, research analyst at ABI Research.

Moreover, 5G network slicing stands to create approximately $8.9 billion in revenue by 2026 at a CAGR of 76 percent. However, ABI analysts say that's a relatively small new revenue amount for incumbent telecom service providers.

Those providers continue to possess strong network assets, namely low-latency, last-mile access and core network capabilities. But for the broader industry, capturing significant new growth opportunities will vary in line with their corresponding digitization initiatives and readiness to adopt new technologies like 5G core networks and cloud-native principles.

Conversely, the established cloud computing hyperscalers are cognizant of these market dynamics and are positioning themselves accordingly with telco-specific solutions -- such as Amazon Web Services (AWS) Wavelength and Microsoft Azure Edge Zones, particularly on edge computing deployments.

Outlook for Telco Cloud Applications Growth

Though moderate in the next 5 years, new value creation abounds, but the jury is still out who captures what parts of the bigger emerging 5G edge and network slicing ecosystem, according to the ABI analyst assessment.

"Aspects like Tiny Machine Learning (TinyML), private cellular networks, Open Radio Access Network (RAN), blockchain, smart manufacturing platforms, and even connected cows point to how technology advancements are allowing our physical world to be better connected, managed, and efficient," said Stuart Carlaw, chief research officer at ABI Research.

That said, there's a history here that's worth reconsidering. This isn't the first time telecom service providers attempt to establish a presence in the cloud computing marketplace. Several of the incumbents initially invested in the development of cloud service offerings, such as IaaS and PaaS, but later sold those assets when competition for customers proved to be very challenging.

I believe that revisiting the cloud arena requires a keen sense of where telecom providers can offer defensible capabilities that can't easily be replicated by more agile and innovative competitors. I'm hopeful that the senior executives at the incumbent telcos will learn from past experience, and thereby ensure that their introduction of cloud edge computing is both unique and compelling.

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