Cloud Services

Vodafone Meets IBM: 5G Dream Team or Culture Clash?

Multicloud skills
"Multicloud" is one of the main buzzwords that IBM has subsequently attached to its Vodafone tie-up. While the UK-headquartered operator already had a sizeable cloud and hosting business, with 800,000 square meters of data center space, it lacked the expertise to manage it and grow during a period when customers are dipping into services from numerous providers. "They've had skills challenges in helping European customers move to Alibaba quickly, for example," says Lambertson. "This partnership gives them access to IBM's professional services and industry skills, so they can make it easier for customers to move."

At its most basic level, then, the partnership is an outsourcing agreement under which IBM will help Vodafone to manage its data centers. For that, Vodafone is paying IBM a tidy $550 million. It will also transfer some employees to IBM, says Lambertson, without disclosing details. Light Reading asked Vodafone for an indication of numbers but had not received information by the time this story was published.

Besides being able to cut its operating costs, Vodafone will gain access to IBM's data center footprint in areas where it has lacked a presence. At the latest reckoning, that meant about 60 data centers in 19 countries. The expansion into each other's footprint should allow both companies to extend cloud-based service offerings. "Vodafone has been offering privately hosted cloud services based on VMware and we have a significant VMware offering based on IBM Cloud that is consistent with Vodafone's," says Lambertson. "We will be able to extend VMware around the world where IBM has public cloud facilities and into the private cloud if customers choose to have it on premises."

IBM must have looked even more attractive to Vodafone after announcing its $34 billion takeover of Red Hat Inc. (NYSE: RHT) last October. While some commentators have voiced concern about a clash of the IBM and Red Hat cultures, the open source cloud specialist has been at the forefront of the latest telco cloud developments, including containerization, edge-computing architectures and cloud-native functionality. "Vodafone expressed to us that our announcement of the Red Hat takeover was viewed favorably by them and was a demonstration of IBM's multicloud capabilities," says Lambertson. (See How Red Hat Could Give IBM's Telco Strategy a New Lease of Life .)

Banging heads
The hardest task for IBM and Vodafone will be on the development of new services. As in the case of IBM and Red Hat, the collaboration risks a damaging clash of different cultures. Keen to avoid any delays, IBM and Vodafone have steered clear of forming a legally distinct joint venture. Yet employees from each firm will sit together in a separate organization led by IBM's Michael Valoochi and Vodafone's Greg Hyttenrauch. "We will have a separate facility and it may be offsite from Vodafone and IBM," says Lambertson. The companies are to share revenues they generate from the sale of new services, but the details of the split are -- unsurprisingly -- not being made public.

In the telecom sector, the example of Cisco Systems Inc. (Nasdaq: CSCO) and Ericsson AB (Nasdaq: ERIC), whose vaunted tie-up in 2015 has been a dismal failure, illustrates the pitfalls for any partnership between industry giants. Who takes the initiative in developing new products, and dealing with customers, is one issue that IBM and Vodafone may need to resolve. Whether the apparent lack of a single brand identity hinders the new venture is a further concern. (See Cisco Lands One on Ericsson With Open vRAN Initiative.)

The IT giant and the telco are at least approaching this opportunity from very different backgrounds, and without too much overlap between their core capabilities. Both need a growth story to sell to investors, and one built around 5G and the cloud -- with all the attendant hype -- is bound to attract interest. If they can make their partnership more than just an outsourcing deal, it could point the way toward a new model of network-and-cloud collaboration. Lambertson already seems to have an eye on a bigger prize. "We're committed to the success of this venture with Vodafone, but it is not exclusive for either party," he says.

— Iain Morris, International Editor, Light Reading

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