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July 7, 2021
Last week's announcement from AT&T and Microsoft surprised me in a way that few other industry events have. Yes, AT&T had been at the forefront of cloud-driven network transformation, open source, disaggregation and all of the other technology shifts we've been watching for the past few years. Moving all mobile network traffic to someone else's public cloud I can understand, but selling to Microsoft what I assumed to be the crown jewels of IP and expertise it acquired through blood, sweat and tears was more than even a hopeful market watcher could have anticipated.
As a new entrant, Dish's move seems reasonable. As an established, market-leading Tier 1 operator, AT&T's move seems, not necessarily unreasonable, but rather, questionable. That is, I have a host of questions after reading the release. I've read Light Reading's coverage – Mike's initial reporting and Iain's response but have otherwise not sought any other hot takes. I've had no back-channel discussions with contacts at either company or with anyone else in the industry.
Here are my initial questions along with some possible answers.
Why partner with Microsoft?
As I've mentioned before, I think of AWS as having a scale advantage and Google as having an innovation edge in the areas of AI and ML – two technologies called out in the initial announcement. IBM's Watson is obviously another strong contender. I think of Microsoft as having an advantage in the enterprise applications and services domain. Many/most 5G business cases appear to be predicated on services for enterprises, which may have influenced AT&T's choice. Microsoft's acquisitions of Affirmed Networks and Metaswitch Networks must have given it valuable expertise and awareness of the challenges of running telco functions on cloud infrastructure, which would only serve to make it a more attractive target.
It's also worth noting that AT&T followed up the Microsoft announcement by touting a partnership with Google Cloud. That news focused on the two companies' collaboration at the edge. My take: The Microsoft deal primarily addresses the cost side of the equation, while the Google one primarily addresses the revenue side.
Want more telecom insight and observations about Google, Amazon and Microsoft? Read every column in Light Reading's exclusive cloud commentary series, The Wizard of Roz.
How will this impact innovation?
I refer here to both the nature and pace of innovation. As Iain brilliantly articulated in his MWC coverage, many feel as though the telecom industry has outsourced innovation to others – most notably the West Coast technology giants, including the hyperscalers. These companies tend to adopt new technology more quickly than the telcos (for reasons I won't dig into here) but I don't know that we should expect them to innovate on the services front any more efficiently than the telcos, who have the knowledge the others don't. When thinking about choosing between the three major public cloud providers, can one really argue that Microsoft is any more innovative than the others? Lastly, given that Microsoft intends to offer the same technology and services to other operators, AT&T (and Microsoft?) will need to innovate in order to ensure differentiation in the market. Doing so was never easy, but it might be harder still when competitors have access to the no-longer secret sauce.
What about the money?
As with any deal, the financial details and contract terms are critical to properly evaluating its value and likelihood of success. Is Microsoft taking on any of AT&T's sizable debt or other liabilities, and if so, how much? Is there any sort of revenue share? What are the conditions, thresholds, performance metrics that will be used to chart progress and measure success? Are there opportunities to pull back? How painful, complex, costly and impractical any reversal would be will depend, of course, on how far along they get. I would expect they will run 5G traffic on Azure for a good long time before making the more significant step of moving 4G traffic. Somewhere the cynics among us are taking bets on whether that will ever happen.
How does this impact AT&T's current and potential suppliers?
Plans for this year are already set, but many companies are sure to be re-evaluating plans for the coming years in light of this news. There is plenty of infrastructure that needs to be deployed for 5G that isn't impacted by this shift to Microsoft, but applications and management software providers may have a tougher row to hoe. I think, too, about the open source communities that AT&T is heavily engaged with, like LF Networking and OpenStack. Maybe I missed them, but I don't recall a heavy Microsoft presence at the open source conferences I used to attend. And what about the other operators who AT&T collaborated with in these open source communities? I'm interested to see if there are any ripple effects for them – and I suspect they will differ depending on geography and size.
I have long championed the idea that telecom operators should be bold and aggressive with their transformation. The bumps and bruises first movers experience provide lessons that, in the long run, should benefit those that follow, and thus propel the industry forward. Under the category, "be careful what you wish for," is a large, incumbent, early adopter of cloud technologies making a strategic choice that clearly and definitively moves the needle for everyone. Which way it moves, and for whom, remains to be seen. It's a three-year deal and much can happen along the way. I, like everyone else, will be curiously, and somewhat anxiously, watching how it all unfolds.
— Roz Roseboro is a former Heavy Reading analyst who covered the telecom market for nearly 20 years. She's currently a Graduate Teaching Assistant at Northern Michigan University.
Consulting Analyst, Light Reading
Roz Roseboro has more than 20 years' experience in market research, marketing and product management. Her research focuses on how innovation and change are impacting the compute, network and storage infrastructure domains within the data centers of telecom operators. She monitors trends such as how open source is impacting the development process for telecom, and how telco data centers are transforming to support SDN, NFV and cloud. Roz joined Heavy Reading following eight years at OSS Observer and Analysys Mason, where she most recently managed its Middle East and Africa regional program, and prior to that, its Infrastructure Solutions and Communications Service Provider programs. She spent five years at RHK, where she ran the Switching and Routing and Business Communication Services programs. Prior to becoming an analyst, she worked at Motorola on IT product development and radio and mobile phone product management.
Roz holds a BA in English from the University of Massachusetts, Amherst, and an MBA in marketing, management, and international business from the J.L. Kellogg Graduate School of Management at Northwestern University. She is based in Chicago.
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