Virtualization and Cloud

The telecommunication industry on the move?

Managed Services have completely opened up the usual separation of work between system supplier and network operators. Now, the next big change in the telco industry is just around the corner: the virtualization of classic network functionality and the move of control software into the cloud. Is there another shift in the value chain? And towards which direction?

Transformation of telco providers – Focus on core business

For decades, network operator planned, established and operated their telecommunication networks on their own. They were supported by system suppliers who developed the network equipment – including hardware and software – and sold it to multiple Telco’s and provided ongoing support for the operation. Besides marketing and sales, the setup and operation of the network was the third core competence of a classical network operator. In short, the network operator was also the service provider for the telecommunication services.

Along the way searching for new business areas, system suppliers took over more and more the domain of the classical network operator. Networks were built in “Turnkey”, especially for new mobile network providers while entering the market. In fact, sometimes the system supplier took over the initial operation phase of the network till the official acceptance and handover of the network was completed. During the first decade of this century, outsourcing and Network Managed Services were in line with the common industry trend. The outsourcing partner, typically a classical system supplier like Ericsson, Alcatel-Lucent or later also Huawei, took over the responsibility for the setup and operation of the Telco-network of the original transferring network operator. Ten years ago Sunrise and Orange (today Salt) also followed this path in Switzerland.

In Europe, the primary driver for Network Managed Services/Outsourcing were cost savings; in other regions like Africa or Asia, the primary reasons were the lacking access to knowledge and skills as well as related aspects of network quality. Later during the first decade of the century, Over-the-Top providers like WhatsApp and Skype additionally coined the new trend and challenged even more the telco operators in their core domain, the speech and text services. The delivery concept “one-stop telecommunication service” got lost.

Virtualization of networks comprises software and hardware – the focus lies in the gain of efficiency and quality of network performance

The virtualization of network components or even complete networks is currently a key trend in the telco field. Instead of classical applications, which are operated on dedicated and sometimes optimized hardware, recently applications are also deployed on virtualized servers.  Even classical telecommunication systems like EPC (Evolved Packet Core) or IMS (IP Multimedia Subsystem) can be realized with virtualized applications, in this case by vEPC and vIMS. Network Function Virtualization (NFV) is now the related key word. With 5G this concept of Network Slicing will be applied to the complete network and Edge Computing will decentralize the network components. Virtual infrastructure replaces dedicated hardware, e.g. in the following manifestations:

  • Commercial off-the-shelf hardware (COTS HW) builds the basis for virtualization
  • A software layer realizes the virtualization and offers generically usable virtual servers
  • The vApps get deployed on the aforementioned virtual servers
  • Communication between applications or parts of applications is guaranteed by e.g. software defined Networks (SDN)

The virtual environment is complemented – depending on the use case – by high performant hardware for special applications. Especially there, where the performance of mass products is insufficiently special hardware accelerators must (still) help out.

Which promise does NFV give? The expectations are high: cost savings, higher flexibility, shorter time-to-market and dynamic as well as automatized association of resources are the expected advantages. The status of development is not as far as it should be, but soon these advantages can be realized.

Network operator and system supplier get new roles – benefits are depending on the corporate size and its structure

The network operators as well as the system suppliers must find their position in the new world of virtualization and the transfer into the cloud. From the network operator’s point of view there are various options depending on the size and structure of the enterprise.

Small network operators acting independently from an affiliated group can use the convergence of IT-applications and classical telecommunication functionalities. On a single platform IT-applications (e.g. an accounting system) can be installed alongside the telecommunications applications (e.g. a DDOS protection). But why should one produce it on one’s own? Especially, if one already acts in outsourcing mode? The outsourcing partner, who is most of the time also the system supplier, can setup a platform which serves multiple network operators. Each network operator gets a virtual platform which builds up on a central platform of the system supplier. In this scenario the network operator transfers the technical responsibility of the core network completely to the system supplier. The system supplier achieves synergies on platform and operation side. Hereby it is important to consider the constraints imposed by e.g. data protection, secrecy of telecommunications, and lawful interception, whether they do not or only partly allow to transfer the critical data outside the country.

Especially for bigger network operators or bigger groups of network operators, a second approach is relevant: the network operator builds and operates the virtual infrastructure on its own. The system supplier delivers the telecommunication application, which runs on the virtual infrastructure. The network operator takes over the role of the system integrator, the system supplier delivers software only. This operation model grants most widely independence from the system supplier. On the other hand, it requires the network operator to build up in-house know-how for virtualization and system integration. Groups of network operators are typically multinational and have to master similar challenges described above, e.g. high signal propagation delays of centralized applications, data protection, secrecy of telecommunications, and lawful interception.

Summary

By introducing virtualized infrastructure, the pack is getting reshuffled. Network operators are mutating into cloud providers, system suppliers are becoming network operators, and network operators are changing to plain service providers etc. An important question for the future will be in which direction midsized, so far technology focused network operators will develop, recognizing that they can’t handle the required change on their own. Alliances are desired, either with system suppliers or other network operators. Hopefully, the expected advantages can finally be realized:

  • Cost savings and high flexibility for network operators (and this includes system suppliers who take over the role of the network operator)
  • Reduced dependency from system suppliers if the network operator or the operator group builds up the infrastructure and takes over the system integration
  • New means of income for system suppliers who build up and operate the infrastructure for smaller network providers and strengthen hereby their position as outsourcing partners