Hyperscalers gain network infrastructure market share

A recent report by MTN Consulting points to a shift in how telcos are allocating their telecoms network infrastructure spend as they move network functions to the cloud.

“A rise in the adoption of [software-defined] cloud-based solutions is expected to reshape the structure of the telco NI market,” according to Arun Menon, Principal Analyst, Telecom & Webscale Network Markets, MTN Consulting.

As the chart below illustrates, the network infrastructure revenues of the three largest telecoms equipment vendors, Ericsson, Huawei and Nokia, stagnated or shrank between the fourth quarters of 2019 and 2023, according to MTN Consulting's report entitled Telecom’s biggest vendors – 4Q23 edition. During the same period both Microsoft and AWS grew network infrastructure revenues, albeit from a negligible base.

“Together Alphabet (GCP), Amazon (AWS), and Microsoft (Azure) booked approximately $6.5 billion in revenues to the telco vertical in the year 2023. This represents “a strong 43% increase from the previous year,” notes Menon.

Microsoft and AWS have both partnered and invested to acquire network know-how. Earlier this month, for example, AWS announced it is joining forces with Mavenir to “revolutionize the deployment of telecom workloads running on the AWS.”

The plan is to collaborate on harnessing “the high availability, scalability, and security capabilities of AWS services to create a new telco-grade deployment model that is set to transform how operators launch 5G, IMS (IP Multimedia Subsystem), Radio Access Network (RAN) and future network technologies,” according to a statement by AWS. Meanwhile, Microsoft’s investments include the acquisition in 2020 of Metaswitch and Affirmed Networks, followed in 2021 by AT&T’s cloud network technology.

Today, the three largest traditional network equipment companies still continue to dwarf the market: Hyperscalers’ aggregate share of the network infrastructure market amounted to only just over 3.0% in 2023, according to MTN Consulting

This should come as no surprise. In recent years, many telcos have been busy transferring their IT workloads to a public, hybrid or private cloud, but core network functions have been a different matter.

But there are signs of change. Telefónica Germany for example, announced last week that it would deploy 5G standalone core software on Amazon Web Services (AWS) cloud, in partnership with Nokia.

“With the new 5G cloud core, we are moving away from traditional architectures and instead focusing on modern, high-performance, and efficient network technologies,” according to Mallik Rao, Chief Technology & Information Officer at O2 Telefónica in a statement.

And in February this year Etisalat announced it would be the first telco outside North America to “deploy and reap the benefits of the Microsoft Azure Operator Nexus and Azure Operator 5G Core solutions.”

And cloud providers have also been quick to support telcos with edge compute offerings and storage nodes that the telcos can plug into, adds Menon. These services include Wavelength and Outposts from AWS, Azure Edge Zones from Microsoft, and Anthos for Telecom from Google Cloud.

As the market develops, Ericsson, Nokia, NEC, Fujitsu, and Amdocs are all collaborating with cloud providers, points out Menon.

“Traditional telco vendors bring deep domain expertise in building and managing telecommunications infrastructure, including radio access networks (RANs), core networks, and operations support systems (OSS). On the other hand, cloud providers like Microsoft Azure, Amazon Web Services (AWS), and Google Cloud Platform (GCP) excel in delivering scalable, reliable, and secure cloud solutions. By collaborating, both parties can leverage their respective strengths to develop comprehensive telco solutions that meet the evolving needs of telecom operators.”