What's going on with Microsoft's telecom biz?What's going on with Microsoft's telecom biz?

Microsoft said it will no longer sell network functions in the telecom industry and will instead focus on providing platforms and AI services.

The move builds on Microsoft's June job cuts to its Azure for Operators business and its recent sale of its Metaswitch business to Alianza.

"As we advance our platform and AI capabilities, Microsoft will shift focus from the network function layer and instead will continue to build out partnerships with providers of these capabilities, using the lessons learned from our work with these containerized network functions to provide a strong platform as intended from the original acquisition of Metaswitch. We will continue to fulfill all obligations to existing customers through the close of this transaction," Microsoft said in a statement to Light Reading.

"This [Metaswitch] divestiture allows Microsoft to focus on its strengths in platform and AI, empowering telecom operators to modernize and monetize their networks, deliver superior customer services, and accelerate innovation through its secure AI platform," the company added.

"They found the [telecom] market harder to crack and less lucrative than they initially expected," summarized Gabriel Brown, a principal analyst with Heavy Reading, a Light Reading sister company.

"All the shiny new stuff is not telco and cloud, it's AI," Brown continued. "That doesn't mean they've abandoned telecom, but it's not the cool thing to talk about."

Still kicking

A number of top Microsoft executives said the company remains active in the telecom industry, despite its pivot.

"The telecommunications industry remains a priority for Microsoft, and we will continue to empower telecom operators to modernize, monetize and innovate through our secure AI platform," Microsoft's Yousef Khalidi, a longtime executive in Microsoft's telecom business, said in a release.

And Shawn Hakl, VP of product management at Microsoft, told Fierce Network that telecom remains a "priority industry" for the company. Hakl, a former Verizon executive who often represents Microsoft at telecom industry events, helped to develop Microsoft's Azure Operator Nexus platform.

In its statement to Light Reading, Microsoft pointed to an October blog post by Microsoft's Silvia Candiani to outline Microsoft's new stance in the telecom industry. Candiani leads Microsoft's "Worldwide Telecommunications, Media and Gaming Industry" division, overseeing the company's strategy for the industry, go-to-market plan and ecosystem growth. Prior to joining Microsoft, Candiani led consumer marketing for Vodafone in Italy.

In her post, Candiani detailed Microsoft's various cloud, AI and security products for telecom operations. She said those range from Copilot for Microsoft 365 (an AI-powered assistant for Microsoft office applications) to the company's Azure OpenAI Service, which allows operators to build custom generative AI (GenAI) solutions.

Microsoft also continues to sell its Fabric service, which uses real-time data to monitor network performance and optimize network operations.

Candiani also specifically pointed to a number of Microsoft customers in the telecom industry. Many – including Vodafone, Orange and Telkomsel – are using Microsoft tech to operate AI-powered digital assistants. Others, like PLDT, are adding Microsoft's technology into network management products from vendors like Amdocs. And vendors including Norwood Systems and Yobi are putting Microsoft's technology into the products they're selling to telecom operators.

On its "Microsoft for telecommunications" website, Microsoft also boasts of marquee telecom customers like AT&T, Telefónica, Lumen Technologies and NTT. But on that site the company still lists a variety of products in the network function arena, including Azure Private 5G Core (a core network that sits on an Azure Arc–managed edge platform with edge compute functions) and Azure Operator Call Protection (which uses AI to handle potential fraud and phone scams).

The AT&T equation

AT&T arose as a core Microsoft telecom partner in 2021, when Microsoft purchased AT&T's Network Cloud 2.7 software technology. Microsoft used AT&T's software to flesh out its Azure for Operators product – built atop its acquisitions of Affirmed Networks and Metaswitch Networks – while concurrently taking over that part of AT&T's networking operations. The product eventually evolved into Microsoft's Azure Operator Nexus, "a managed hybrid cloud platform that supports carrier-grade network workloads with the management plane in Azure and the control plane and user plane deployed on operators' premises or in Azure," according to Microsoft.

On its telecom website, Microsoft makes no mention of its core networking deal with AT&T. Instead, it boasts of AT&T's use of the Microsoft Azure OpenAI Service. AT&T is using the AI chatbot for a variety of tasks, according to Microsoft, including "to empower employees to complete common human resources tasks, such as changing withholdings, adding a dependent to an insurance plan, or requisitioning a computer for a new hire."

Regardless, AT&T executives recently confirmed the operator is moving forward with Microsoft's Azure Operator Nexus.

"So we continue to have a very deep and strategic relationship with Microsoft," AT&T COO Jeff McElfresh said last week during a media event held in conjunction with AT&T's analyst day. During that analyst day event, AT&T CTO Jeremy Legg said the operator is in the process of collapsing its various legacy core networks into a single, standalone core that is cloud native – but he did not mention Microsoft.

Broadly, AT&T officials have said the operator won't be affected by Microsoft's changes, in part because AT&T runs its Azure system internally.

Earlier this year, Emirati operator Etisalat emerged as Microsoft's second customer for its Azure Operator Nexus platform.

Going forward

Ruth Brown, another principal analyst with Heavy Reading, said Microsoft remains active in the telecom industry via its work with TM Forum. "They're very focused in the AI ops space," she said of Microsoft.

And Roberto Kompany, an analyst with Omdia, which is also a Light Reading sister company, said most telecom operators are shifting from multivendor core network deployments to ones managed in a single stack.

As for the Azure Operator Nexus platform, Fierce Network reported that Alianza's purchase of Microsoft's Metaswitch includes all of Metaswitch's legacy products, as well as the new ones developed at Microsoft – except for the Nexus portfolio.

Microsoft did not directly respond to questions from Fierce Network about what it plans to do with Affirmed Networks going forward. Microsoft bought that company in 2020 for a reported $1 billion.

Most hyperscalers like Microsoft have struggled in the telecom market, according to Heavy Reading's Gabriel Brown.

But Ishwar Parulkar, a top executive in the telecom business within Amazon Web Services (AWS), said his company "remains committed to telecom."

In a November conversation with Light Reading, Parulkar declined to comment on Microsoft specifically. But he said AWS "chose a very different path than our competition in the sense that we decided to work with all the ISVs [independent software vendors] and give the customers, the telco customers, the choice of partners."

Parulkar continued: "So I think that was a very intentional decision that we took. And that is definitely resonating with our telcos because they want the flexibility of using any ISV they want to, and we work with all of them. So that's played out well for us."