AT&T announced it will transition its 5G network operations into Microsoft's cloud over the next three years. The announcement – by two of the biggest technology companies in the world – essentially crystallizes a seminal shift in the global 5G industry as operators increasingly move their core network operations from their own internal systems and into the public cloud.
The companies disclosed a few key details about their new deal, but did not provide any firm numbers or any financial details:
- Microsoft will "assume responsibility for both software development and deployment of AT&T's Network Cloud immediately," according to the companies, and will transition AT&T's existing network cloud operations into Azure over the next three years. Eventually, all of AT&T's mobile network traffic will run over Microsoft's Azure.
- The effort will start with AT&T's 5G core, but will eventually include virtually all of the company's network operations, including its 4G core.
- Microsoft will be the company to certify all of AT&T's software-powered network operations for inclusion in the AT&T network. That will include software from other vendors. AT&T has not yet named its 5G core network vendors.
- Microsoft will acquire AT&T's Network Cloud technology – including its AT&T engineering and lifecycle management software – and its cloud-network operations team. The companies did not disclose exactly how many AT&T employees that transaction might cover, but an AT&T official suggested it will be in the "low hundreds." Microsoft will then incorporate AT&T's intellectual property into its Azure for Operators offering, which is for sale to other 5G network operators.
- Microsoft and AT&T did not provide extensive details about the on-the-ground logistics of their deal, including exactly how many Azure computing locations might be necessary to power AT&T's network. It's an important issue considering AT&T's network spans an estimated 70,000 cell towers across the country, and the operation of the radios on top of those towers might eventually be handled by programs running inside of Microsoft's cloud. A top Microsoft executive involved in the deal explained that Microsoft's Azure software will be installed into some of AT&T's existing computing locations, locations in some cases staffed by AT&T technicians. And AT&T said the company plans to continue to run its network workloads inside of its own data centers and facilities. However, AT&T added that the deal today is focused on AT&T’s core network and that the companies might explore additional elements of the network such as Open Radio Access Network (ORAN) technology over the course of the agreement.
"It's the first time a Tier One operator has trusted their existing consumer subscriber base to hyperscaler technology," Microsoft's Shawn Hakl, VP of the company's 5G strategy, told Light Reading. Before joining Microsoft in 2020, Hakl was a longtime Verizon executive.
A telecom journey into the cloud
For AT&T, the move into Microsoft's Azure caps years of investments by the company into virtualized, software-powered network operations. AT&T was an early leader in the global telecom industry's shift to software defined networking (SDN) and virtualized network function (VNF). The company last year reached its goal of virtualizing 75% of its network. That work helped to shift AT&T's network operations from dedicated, purpose-built hardware and onto software that can run on top of standard, off-the-shelf computers.
However, AT&T has largely resisted moving its core network functions off of its private, internal cloud and onto a public cloud.
"There are probably workloads that we have that would be good candidates to move out there [into the public cloud]. I wouldn't say that they're the network ones, but maybe some of the traditional IT application services that could run on a public cloud that we wouldn't need to host," Alicia Abella, an AT&T VP, told Light Reading in 2019.
When asked whether AT&T would consider moving some of its network functions from its private, internal cloud and onto a public cloud operated by the likes of Amazon or Microsoft, "you can imagine being able to do that," she responded.
But AT&T's shift from its own, internal cloud operations to the public cloud accelerated during the past two years. For example, AT&T sold its own data center operations and assets to Brookfield for $1.1 billion at the beginning of 2019.
Then, in the middle of 2019, AT&T named Microsoft as its preferred cloud provider for "non-network applications." In announcing its deal with Microsoft, AT&T joined a wide range of other companies in moving standard corporate IT functions into the cloud. However, the company at the time made it clear that its bread and butter – its network operations – would remain safely ensconced in the private cloud that AT&T built for itself. AT&T's private Network Cloud runs mainly on OpenStack using standard x86 processors.
In 2020, AT&T announced a cost-cutting program aimed at trimming $6 billion from its budget by 2023. Part of that effort includes an "IT rationalization" that involves eliminating unneeded applications and moving other applications into the cloud.
More recently, AT&T offloaded its WarnerMedia content business to Discovery and said it would focus its efforts more specifically on fiber and 5G.
Now, with its new Microsoft deal, AT&T said it hopes to "substantially reduce engineering and development costs." However, the companies haven't provided a firm cost-savings estimate for AT&T's move into Microsoft's Azure.
AT&T isn't the only 5G operator to eye the public cloud. For example, Dish Network recently said it will run its planned 5G network in Amazon's cloud. And other, more established operators have increasingly flirted with similar moves. But AT&T's announcement with Microsoft represents a landmark in the overall trend considering AT&T is a massive, established network operator with a long history in the telecom business.
Microsoft's big telecom bet
For Microsoft, the AT&T deal represents yet another firm sign that the company is deadly serious about chasing the global telecom business. Broadly, the effort is likely an attempt by Microsoft to accelerate its momentum in its cloud computing battle with Amazon. According to Synergy Research Group, Amazon continues to be the world's biggest provider of cloud computing services based on revenues, with a 30% share. Microsoft, though, is developing a solid follow-up position considering it has increased its own cloud computing revenues from a 10% share in 2017 to roughly 20% in 2020.
Microsoft's desire for telecom's business became clear in the middle of last year. First, the company announced its acquisition of Affirmed Networks, rumored to be $1.35 billion. Just a few months later, it purchased Metaswitch Networks in a deal estimated to be at least $270 million.
Microsoft's ambitions in the industry then crystalized in September 2020 with its announcement of "Azure for Operators."
"What you're seeing is an accelerated trend," Hakl said. "If you'd asked me 18 months ago, I'd have a different answer for how fast I thought this kind of stuff would happen. But we're seeing, really in the last six months, an acceleration in people that are interested in adopting cloud."
Hakl explained that Microsoft's Azure is a logical resting place for 5G network operators' systems.
"You can centralize a lot of the control plane functions," he said, suggesting those functions could run in one of Azure's massive data centers. "The user plane function will always be distributed. In fact, in 5G it probably gets more distributed. So as a result, there'll be an Azure form factor device, an edge compute device, that we'll have for that distributed user plane. What you get across all that is a common cloud management platform that provides common orchestration, security and policy, DevOps and lifecycle management capabilities."
He continued: "So you've got this cloud manager capability that essentially becomes a single pane of glass, regardless of how distributed the edge compute is or how centralized it is ... Rather than having to expose that all up every time, you can extract that out and give a single pane of glass across that, with a common cloud management layer. And that's essentially the architecture that's being deployed here."
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