In a groundbreaking move, Telefónica is transitioning its core network to a public cloud, taking one million 5G subscribers in Germany along with it. What does this cloudification mean for its customers and for other telecom companies still reliant on physical infrastructure?
This month, Telefónica Germany will migrate one million 5G customers to Amazon Web Services (AWS), as reported by Reuters. This marks Amazon’s boldest venture into the telecom market yet. Last year, there were rumours of Amazon partnering with an unspecified US telecom company to offer a low-cost or free mobile tariff through Prime.
While some telecom companies have moved non-core operations to the cloud, Telefónica is the first established mobile operator to move its core network to the public cloud. Previously, Dish Networks deployed its 5G core network onto AWS, but this was done as a greenfield setup without migrating existing customers.
Traditionally, telecom companies have relied heavily on physical infrastructure investments, wary of the potential vulnerabilities introduced by the shared nature of public cloud infrastructure. However, as network demand grows faster than infrastructure can keep up, the need for lower latency and increased capacity is pressuring operators to enhance their infrastructure.
The public cloud offers a solution, theoretically reducing costs, increasing scalability, and enabling a transition to a more service-oriented model. Cloud-based telecom services can provide greater flexibility and choice to customers. The scalability and redundancy of cloud infrastructure, along with the separation of workloads into microservices, can result in faster response times and fewer service disruptions, leading to a more seamless and satisfying user experience.
Powered by Nokia’s cloud-native 5G architecture, Telefónica Germany’s rollout will enable the delivery of advanced services beyond traditional voice and data, with “extended reality and network slicing” highlighted as significant benefits.
For Amazon, this move represents a step towards generating billions more in revenue. Global cloud spending has been increasing, reaching $76 billion in recent years. AWS’ Vice President Jan Hofmeyr indicated that the company expects to make similar deals with other operators soon. Earlier this year, AWS announced a partnership with NTT Docomo to deploy 5G Open RAN in Japan.
Telefónica’s CTIO, Mallik Rao, stated that he wants to “see it working for at least one to two quarters and have a roadmap to move at least 30-40% of my customer base by 2025-2026.”
The transition to the public cloud will not happen overnight. However, as the lines between connectivity and cloud providers continue to blur, there is potential for both partnership and competition, particularly in enterprise-focused areas like IoT and edge computing.
By turning to the cloud, telecom companies can offer new value-added services directly to customers, differentiating themselves in the market and generating revenue streams beyond traditional connectivity services, including security, computing, and storage. However, they risk becoming dependent on large public cloud providers like AWS, Azure, or Google Cloud. These providers could increase prices over time, and if they develop the capability to offer their own connectivity services and integrated solutions at competitive prices, they could significantly threaten telecom companies’ market positions.
Relying on any given cloud also exposes firms to risks of outages and errors on the provider’s side. For example, on the same day as Telefónica’s announcement, Google accidentally deleted the Cloud account of an Australian pension fund due to an “unprecedented misconfiguration,” cutting off a million customers for a week. Though Google stressed that such a mistake had never happened before, the possibility of another fault is a significant concern for companies depending on a cloud provider. Fortunately for the pension fund, a backup at another provider saved them from a total data wipeout.
The implications for traditional telecom companies are substantial. If they avoid the public cloud route, they risk losing ground to competitors who embrace it and offer a leaner, better customer experience. However, they may also wish to retain control over their networks and the data within them, avoiding third-party providers.
While migrating core networks to the public cloud presents certain threats to traditional telecom companies, it also offers opportunities for long-term success through diversification, innovation, and collaboration. Telecom companies that effectively navigate these challenges and capitalise on the growing opportunity for cloudification could benefit from long-term gains in efficiency and cost savings.
Cerillion plc (LON:CER) is a leading provider of billing, charging and customer management systems with more than 20 years’ experience delivering its solutions across a broad range of industries including the telecommunications, finance, utilities and transportation sectors.
